5 Facts about Credit Scoring

Are you thinking of buying a house or a new car? If you’re like most people, you’ll probably have to secure a bank loan. When it comes to money lending, most financial institutions strive to live by maxim of ‘only good credit need apply.’ Yes, there are lending institutions that will lend to individuals or businesses with very low credit scores (known as ‘bad credit loans’), but these loans often come at a high price. These types of loans frequently come with very high interest rates and exorbitant fees that can end up costing consumers much more than the original purchase. Even if your credit score is not necessarily bad, but just ‘so-so’, chances are you’ll end up paying a lot more than a person with very good credit.

So what exactly do lending institutions consider good credit? Good credit is based on your credit report and the accompanying three-digit FICO credit score.

Your FICO credit score is based on a number of factors, including:

1) Your payment history. This includes whether you have missed any payments, or paid late. Payment history also involves the different types of payments (car, house, different credit cards, etc…) you make each month. Roughly 35% of your credit score is determined by your payment history. A person with good credit probably has a consistent record of paying on time each month over a long period of time, with little or no missed payments.

2) The amount you owe on all your different accounts. Do you have dozens of accounts carrying high balances? Are most of your credit card accounts maxed out? Or can most of your debt be traced to one or two accounts, such as your mortgage and car payments? Good credit is hard to attain if you carry balances on many different accounts. A person with good credit probably only carries balances on one or two accounts.

3) The length of your credit history. This refers to whether you have established sufficient history to provide an accurate portrait of how you manage your finances. Lending institutions want to know whether you have a history of paying on time. Keep in mind that even if you have managed your credit perfectly, if your account is only a year old, it probably won’t raise your credit score immediately. Keep it up for a few years, however, and watch your credit score soar.

4) Types of credit. Another factor used in calculating your credit score involves the types of credit you use. Different kinds of credit include credit cards, mortgages, and installment loans such as car and student loan payments. If the type of credit you most commonly use weighs heavily on credit cards and other high-interest credit sources, your credit score will probably suffer.

5) New or recent credit history. The last factor used to calculate your credit score has to do with your recent credit history. This includes any new credit accounts you may have opened, whether you’ve made requests for new credit, and how you’ve recently managed all of your credit. If you decide to open several new accounts at once, be warned that this may hurt your credit score. A person with good credit most likely does not open new accounts frequently, but rather has a long history with a few accounts that are in good standing.

Now that you have an idea of what good credit looks like, how can you improve your chances of getting a loan if your credit is less than stellar? First, obtain a copy of your credit report. Your report is available from any of the three major credit reporting bureaus—Experian, Equifax, and TransUnion. By law, you can obtain a free copy of your credit report once a year, but additional copies will cost you approximately $13. Review your credit report carefully and contact the credit bureau if you spot any errors or omissions (be prepared to provide documentation).

Remember that so much of your credit score depends on your payment history. The importance of paying your bills on time, every month, cannot be stressed enough. Many banks offer you the option of scheduling automatic payments each month. Make use of these, if your financial situation allows. Also, don’t open new credit accounts if you don’t intend to use them, and don’t open and close accounts frequently. Instead, focus on using responsibly the accounts you already have. This alone will raise your credit score, and make you much more likely to get best loans from lending institutions.

4 Tips to Make You More Aware

Everyone wants to buy their own home and the most convenient way to do this in a “rush, rush world” like today, is by applying for a mortgage loan. The mortgage loan business is a big one. There are hundreds if not thousands of them trying to lure you in, but you have to beware and watch out for crooked mortgage companies. These crooked companies are out there and won’t care if your loose your home, your savings or even if you go bankrupt. They especially like to prey on the first time home buyer. These companies are looking out for themselves not you, so when you start your hunt for a mortgage make sure you don’t fall into their trap, no matter how seductive their deals may sound. Here are a few tips to help you point out a crooked and fraudulent mortgage company.

1. Be aware if the lender doesn’t give you a good faith estimate of what the closing cost will be. Under The Real Estates Settlement Act they must provide you with this information within three days once you have applied for the loan. An honest lender will give this to you without a problem as they have nothing to hide. Some of the really good lenders will even give you a good faith estimate on your pre–qualifying information. Also watch out for any company that won’t give you information on any of the costs up front, such as interest and other fees.

2. Beware if the lender says it is ok for you to lie about any information, especially about your income on a mortgage loan to increase your chances of approval. Any sort of lying on any loan form is classified as fraud and is a criminal act. Besides if a lender does encourage you to do such a thing, use your common sense, if they give you the leeway to do it, then they will probably have no problem committing fraudulent acts upon you.

3. Beware of interest rates that are amazingly low or incredibly high. Low interest rates can be very tempting, especially when they beat everyone else by two or three percent. You may think that this will save you money, but in the long run it will only cost you more because most loans with a low interest rate like these tend to increase significantly throughout the time line of the loan. People with a less than perfect credit rating usually fall needlessly victim to high interest rates that are usually two or three percent higher than everyone else. There are many places online that offer to check interest rates against your credit and can give you an accurate estimate of how much you should be paying.

4. Be aware if you feel pressured into applying for a mortgage loan that you don’t understand, can’t financially afford or if you are told that you are only going to get the loan through that certain company. If you do feel unsure of anything with a loan, ask them to explain it to you in detail or go to someone else who you can trust. You may want to speak with a lawyer and ask them to go through the loan with you. If you are being pressured to go with a certain company for a loan, then don’t do it. If they can offer you a loan then so too will other companies and without all of the pressure.

When seeking a mortgage loan, make sure that the contract does not differ from the original contract. Companies that ask for more signers, credit insurance, or prepayment penalty fees are probably looking for ways to make money off of you and don’t have your best interest in mind. In this case, you should take your business else where.

These are just some of the things you should look out for when mortgage loan hunting so you are not caught in a trap by a corrupt company. If you are ever in doubt, don’t use the company, as there are many more to choose from that will be happy to take your business and will offer you assistance with anything you are unsure of.

The world of mortgages can be very overwhelming when you first look at all of the options. There are so many terms, regulations, different fees, options, and different forms that it can become very confusing. But with a little understanding and research on exactly what mortgages are all about, you will find that it will be a lot easier to apply and get the home of your dreams. Below is some information on mortgages and some of the things that go along with them, like fees and terms, to help give you a little understanding on the subject.

Types of mortgages:

There are many types of mortgage options available. The three main types are fixed rate, convertible and special loans.

The fixed rate home loan in which you have options like:

30year loan – where you pay a fixed fee over the course of 30 years.

15 year loan – where you pay a fixed fee over the course of 15 years

Biweekly – where you pay your repayments every two weeks.

Adjustable rate mortgage or ARM – where you pay you variable amounts each repayment, they are based on the interest rate.

Convertible loans that include:

Hybrid and convertible ARM – where you can covert between a fixed rate or an ARM

Interest only loans – where you only pay the interest each payment until you are able to put down a lump sum.

Balloon loans – where you pay only the interest and at the end of the term you pay the total amount due all in one large payment.

Reverse mortgage – for equity rich seniors and don’t have to make any repayments until sale of the house.

Buy down loan – a loan that works on points to lower interest rates.

And the last category of loans is special loans:

FHA loan – for first home buyers and people with credit problems.

Veteran Affairs mortgage loan – only for people and widowers of the armed forces.

With all these mortgage options and more there will definitely be one that will suit your needs.

Fees:

There are many types of fees when it comes to mortgages, some of these fees and what they are for include:

Appraisal – where you pay for a person to do an appraisal on what your completed home’s value will be.

Organization – a fee that pays the lender and their workers for processing your application and other related duties.

Down payment – what you put down on a deposit on your home, this is usually about 1–20%

Closing costs – this pays for the transfer of your ownership of the home, this is usually 1-3% of your loans total but it can vary.

Other terms:

There are many other terms that you should know when going into the mortgage field. Below are some of them and what they mean.

Points – these are used to lower your interest rate and are usually done by a lump sum payment at the closing.

Good faith estimate – this is when you are given that total in amount of fees you will have to pay when it comes to the closing.

Loan locks – this is where you and the mortgage company or lender agree on a set interest rate at the beginning of the mortgage process, if you don’t lock your loan the interest rate can increase or decrease.

A truth in lending disclosure – this form gives you the complete cost of your loan in both a percentage and dollar form.

Pre qualifying – this is where you qualify for a loan before you actually go for one, it is a good way to review your financial status and lets you determine what amount of loan will suit your budget.

PITI – this means principle (amount of your loan), interest, taxes and insurance, all of these things are crucial to your mortgage and your repayments.

Escrow – this is where money and important information is held by a third party while two people are in a business transaction.

There is so much information you need to take in when you go into the world of mortgages but hopefully the above has given you a little bit of understanding of what it is all about. This should help you ease into the mortgage field a little easier. A financial professional or your lender will be happy to go through all the details with you when you are having trouble.

The United States Department of Housing and Urban Development (HUD) drafted and enacted the Real Estate Settlement Procedures Act (RESPA) more than 30 years ago as a consumer protection statute designed to help home buyers navigate their way through the sometimes complicated business of real estate. Specifically, RESPA addresses the issue of home buying closing costs and settlement procedures.

Under the terms of RESPA, home buyers are entitled to receive certain disclosures during the course of a real estate transaction. The law also prohibits kickbacks and referral fees that unnecessarily inflate the cost of settlement services and therefore falsely driving up the cost buying a home. RESPA provisions apply to loans secured with a mortgage on residential properties designed to house one to four families. Examples of the types of loans covered by RESPA include:

Purchase loans

Assumptions

Refinancing loans or measures

Property improvement loans

Lines of credit based on equity

An office within HUD, called ‘RESPA and Interstate Land Sales’ enforces the RESPA statute. Buyers may contact the office directly if they think the terms of closing and settlement in their house deal do not respect RESPA provisions.

RESPA stipulates that certain disclosures be made at particular times during the real estate transaction process. When a buyer goes to apply for a mortgage loan, his or her broker or lender must provide – either at the time of the application or by mail within three days – a Special Information Booklet, a Good Faith Estimate (GFE) of potential settlement fees, and a Mortgage Servicing Disclosure Statement.

The Special Information is required for home purchases only, and contains details about different kinds of real estate settlement services. The GFE outlines the type and amount of settlement costs the buyer will likely encounter when his or her house deal closes, as well as whether the broker or lender requires the buyer to use a particular settlement services vendor. The figures in the GFE are estimates, but they should be relatively close to the actual settlement costs at closing. Finally, the Mortgage Servicing Disclosure Statement reveals whether the broker or lender will handle the buyer’s loan or whether it will be transferred to another lender. The Mortgage Servicing Disclosure Statement should also have a section dedicated to options the buyer may employ to resolve any complaints.

If the buyer decides to go ahead with the transaction after securing appropriate financing, the next RESPA-required disclosure is an Affiliated Business Arrangement disclosure (AfBA), which is used if a settlement service vendor or provider refers the buyer to another provider that is affiliated with the original service provider. The affiliation can be part or full ownership of any other beneficial interest. The AfBA disclosure must be made before or at the time the referral is made, and it must give a full description of the relationship that exists between the two companies as well as a reasonable estimate of the fees of the second settlement service provider. In most cases, the buyer is not obligated to accept the services offered by the second service provider, but he or she may choose to do so.

One day before the settlement (or closing) date, the borrower may see the HUD-1 Settlement form, which details all settlement charges imposed on borrowers and sellers. All parties receive a complete copy of this form, showing all of the actual settlement costs, at the time of settlement, or in the mail shortly thereafter.

Another disclosure that is made at the time of settlement is the Initial Escrow Statement, which lists the estimates of charges that are expected to be paid from the escrow account during the first year of the loan. Charges may include taxes and insurance premiums. After the first year, loan servicers must provide borrowers with an updated annual escrow, which lists all deposits and payments, as well as any relevant shortages or surpluses related to the account.

If, at some point after the settlement occurs, the loan servicer reassigns the loan to another servicer, the borrower must be notified 15 days in advance by means of a Servicing Transfer Statement.

While RESPA does not set out particular penalties for non-disclosure of the above mentioned items, kickbacks and referral fees that violate Section 8 of the law are subject to fines of up to $10,000 and imprisonment for up to one year.

Settlement or closing fees cost Americans about $55 billion each year. HUD has initiated a RESPA reform process that the department hopes will simplify the costs involved with buying a home to better reflect the Bush administration’s goal of helping to build an ‘ownership society’ in which all Americans can own their own home. The reform process has not been completed, and for now, the rules remain as they have been for the past three decades.

Disasters or natural calamities are both unforeseen and unpredictable. If you live in Illinois, you’re most likely to be affected by tornados, floods and earthquakes. And if this means your property is damaged or destroyed, you will have many concerns: concerns about where to stay temporarily, emergency repairs and how much it will cost you to rebuild your house.

Before calamity is king: Your protection against a disaster is, as you know, homeowners or renter’s insurance. Whether you own property or rent it, you must have appropriate insurance coverage for yourself, your property and your personal belongings. Check to see if your landlord has any protection against damage in such situations, though his insurance won’t cover your personal precious things.

Here’s what you can do before disaster strikes and damages your property:

Make an inventory of all your personal property. Make a list of all model and serial numbers of expensive products such as a TV, VCR, computer, etc. Maintain receipts of these items as they prove your ownership. You can also take videos of the inside of your home to show which products you owned before disaster struck and damaged your home.

Do you have photocopies of your insurance policies kept in a safe location before disaster could strike? Important papers must be kept away from the site of damage so that you can use them to save your property.

Keep your insurance person’s name and telephone numbers handy and away from the scene of disaster. Also, familiarize yourself with the details of your insurance policy. When it comes to your property, ensure you understand the difference between actual cash value (ACV) and replacement cost coverage for your damaged contents.

After disaster, deluge and damage: Contact your insurance company once disaster has struck. Supply as much detailed information as you can about the damage to your property. Your insurance company may put out the procedures for filing a claim on the radio, TV or in the newspapers.

If no one from the company comes to you once you have made initial contact after the disaster, claiming damage to your property, ask to speak to the claims department. To be in the thick of things, you need to fully understand your rights and duties. First, accept that you will be emotionally spent, so ask a friend to help you out with routine household chores.

Makeshift arrangements: In order to save your property from any further damage, make temporary repairs such as patching holes in the walls or roofs as soon as you can. Here’s a little friendly help on how to make temporary repairs to your property after the disaster:

Get in touch with your insurance company for emergency money for temporary repairs to cover all damage to your property.

Take photographs of the disaster and the extent of damage to your property before you began cleaning up and repairing it.

As a property owner, it is your duty to safeguard your property against damage and disaster.

Keep all bills pertaining to the expenses incurred due to the disaster? Don’t dispose of items relevant to your damaged property.

Before you give out your house for damaged property, ensure you get prior agreement from your insurance adjuster on the disaster.

If your house is so badly damaged after the disaster that there is too much water all over your home, try to sweep it out and air out your property to dry.

Take an inventory round your property to see the extent of damage after the disaster. Look for metal objects that might have rusted by spraying them with oil. Call in an electrician to check all electrical equipment.

Call in an adjuster from your insurance company to come to your home, examine your property and write out a report of all that is damaged or a written damage estimate for the company. Get his name and telephone number in case you need to contact him. Be sure to get a copy of the estimate report and keep it safely. Also, do not hesitate to ask questions if you don’t understand anything. For further questions, contact the Division of Insurance.