How much credit card use can effect your credit score

How much credit card use can effect your credit score

Minneapolis, MN: Why does how much credit you’re using matter?  Simple, lenders look for signs of responsible credit usage, and the better you are at living within your means, the better it is for your credit score.
Many people think that simply never being late on your credit card is all you need to have a great credit score, but this is far from true. Everyone is viewed under what is know as the law of large numbers.  If most people in similar situations do similar things, you probably will too. If you constantly carry a balance, especially a high balance, you are considered high risk.  This because historically, those who carry high credit card balances tend to default at a higher rate. Therefore the assumption is you will too if you carry a high balances.
If you are using most of your credit, it may be difficult for you to get additional credit or other credit with a good interest rate.  Plan on getting a mortgage loan anytime soon? Mortgage interest rates on conventional loans can vary as much as 3/4 of a percent higher for someone with a 640 credit score versus someone with an 800 credit score.
Simply put, who tends to carry high credit card balances?  Those in good shape financially, of those maybe more living on the edge of their means?? Your credit score reflects the risk.
On the other hand, if you carry low or no balance, this generally means you are in good shape financially, and either don’t need to use the credit, or only a tiny bit of your available credit.

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Credit Score Tips

As you can see in the graphic above, using less than 30% of your available credit is a good goal, but less than 10% is better. Keep in mind that never ever using credit can also have a negative effect, because they don’t know how to judge you.  Therefore using some available credit every once in awhile, and then paying it off quickly is generally a very good idea versus never using any credit cards at all.


Don’t lie on your mortgage application

Minneapolis, MN:  Home mortgage loans are one of the toughest loans you’ll ever apply for. The mortgage industry VERIFIES EVERYTHING. Credit, jobs, income, bank statements, tax returns, first born child, blood samples.  OK, maybe not the last two… But we check just about everything else.

I’ve been taking mortgage applications for over 20-years, and it appears many people treat it like a resume… and feel it is OK to pad information, or leave information out in order to improve their chances of getting approved.

False information on a mortgage application is a federal crime.

You may not think a little white lie, or omission is a big deal, but fraud is fraud, even on a mortgage application. Few, if any people actual read what they sign, but the application does contain the following notice:

The information provided in the application is true and correct as of the date set forth opposite my signature and that any intentional or negligent misinformation of the information contained in the application may result in civil liability, including monetary damages, to any person who may suffer any loss due to the reliance upon any misrepresentations that I have made on the application, and/or criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United States Code, Sec 1001, et seg.

Yikes.

Lenders check everything (twice).

The lending process is paperwork intensive.  We ask people to provide a lot of documents. While the vast majority of people are honest, you may be shocked at the number of forged documents we see.  Prior to the real estate market crash, it was much easier for deceptive people to fool lenders with phony documents, as many of the items people provided were taken for face value, and no additional verification were done.

A common example would be an altered W2 statement, where someone scanned in to the computer, and used PhotoShop or other similar software to change a 3 to an 8, and shows $80,000 a year income instead of $30,000 a year income.  That might have worked in 2006, but it doesn’t work today.

The electronic world we live in, and the tools available, simply will not let you get away with any of that anymore. Written verification of income with your employer, verification of W2’s and tax returns with the IRS. Verification of bank statements with your bank, fraud checks, and better credit reporting all work together to make it virtually impossible to commit this type of fraud.

I recently had a client who had a foreclosure that for some odd reason was not showing on the credit report. So they assumed we would never find out, and didn’t mention it. They also ‘lied’ on the application, as there is a question about having foreclosures. We found out, meaning all they did is was waste my time, the real Estate Agents time, the sellers time, processors, underwriters, and even their own money paying for inspections and appraisals on a house they could never buy.

Don’t fool yourself

You may be able to fool your Loan Officer up front, and get a pre-approval. This is because the initial pre-approval process generally does not encompass all the verification and fraud checks.  Because these items cost money, lenders don’t usually do these additional checks until a home has been picked out, a purchase agreement signed, and the full file goes into actual underwriting.

Home Mortgage Loans in WI, MN, SDNothing worse than to have found the perfect home, given notice to your landlord, packed all your belongings, only to find out the misinformation or omission has been discovered, resulting in a loan denial.

For Real Estate Agents, this is a common reason why a loan may die late in the process.  Because of privacy rules, I generally only say a discrepancy of information has been discovered is the reason for loan denial.

Tell your Loan Officer everything

It may be tempting to fudge the details slightly, or even try straight up fraud. My best advice is to always complete a mortgage loan application with 100% accurate and truthful information, and to always tell your Loan Officer everything. It will be discovered anyway.


Consumers disqualify themselves for home loans

Consumers Misjudge Max Debt-to-Income ratios… and Disqualify Themselves from home loans

According to a survey by Fannie Mae’s Economic and Strategic Research Group, many consumers think it’s difficult to get a mortgage in today’s market.images98735

And forty five percent of those respondents cite too much existing debt as a top reason. Yet, in that same group, more than half don’t actually know the maximum debt-to-income ratio (DTI) required by lenders.

The result — potential buyers may be wrongly disqualifying themselves before they even apply for a mortgage.

That’s why it’s key to provide information, resources, and tools to educate consumers on the mortgage process, and any perceived barriers, including Debt-to-Income guidelines.

This is also why it is key for the consumer to work with a fully licensed and experienced Loan Officer, versus the more common unlicensed mortgage loan application clerk, who can help you determine the best home loan program, and explain the various program rules and guidelines. On a regular basis, I come across clients who think they can’t be approved for a home loan, yet they can. On the other hand, I also run across plenty of people who have no chance of getting a home loan today, yet they apply.

The bottom line is that it never hurts to apply. You may be given a pre-approval for your dream home, and if not, you’ll be given details on how to improve your situation to be able to qualify later.

Learn more about how to choose a mortgage loan officer here.

Download more insight on DTI and learn about the overall study here.


Minnesota has Highest Credit Scores

Minnesotans have nations highest credit scores.

According to a survey by credit agency Experian, the highest average credit scores for both sexes are found in Minnesota, where men score 703 and women score 710, out of a range of 300 to 850.  The numbers reveals Minneapolis is home to the men with the highest average scores, at 705 in the nation. Women in Green Bay, Wis., do even better, with an average score of 709.

Average scores nationwide for men is 670, and for women 675.  A full 1/4th of people fall in the 600 to 699 range, with the higher 600 scores being considered average, and the lower 600 scores being considered poor.

Nevada has the lowest men’s score average at just 645, while the lowest for women is Mississippi with a 640 average score.FICO scores

Many factors determine your credit score, with the biggest one being payment history. Learn more about what makes your credit score.  The score needed to get a mortgage loan, or getting a mortgage loan with a credit score below 640 is very difficult, and getting a loan with a score below 620 is virtually impossible, regardless of what you may read.


Tips for a Smooth Mortgage Application

Tips for a Smooth Mortgage Application

Shopping for a new home can be fun.  Looking at new homes, seeing different style homes, see how others decorate and starting to imagine what the home would look like when you moved it.

Getting a home mortgage loan – not so fun. But you can make it a much easier and smoother process if you start by working with a good Minnesota, Wisconsin, or South Dakota mortgage professional. Quickly followed by being realistic, cooperative and responsive to the paperwork requirements of the loan process.

First step, be realistic. Are you ready to buy a home?  Is your credit OK?  Do you have stable employment?  Do you have some money for down payment?  Assuming YES, the first step is to complete a loan application.

How to Pick A Lender / Loan Officer

Always use a local lender.  There is nothing better online than you can down the street. More often than not, it is actually the other way around. For example, no big internet lender can offers your “local” down payment assistance programs.

Always work with an experienced and fully licensed Loan Officer (read my previous article on learning how to tell the difference).

Mortgage Application Documents

images98725The mortgage application process is cumbersome and paperwork intensive.  Everyone needs to supply basic documents, but depending on your individual situation, you may need more – sometimes a lot more.

Gather and have your basic document ready as listed below. Please do not argue with your Loan Officer. When they call asking for something, it is not them picking on you, it is required. Arguing will get you no place except denied if you don’t supply what is being asked for

Checklist:

  • Photo ID
  • Two most recent pay stubs for each person signing the loan.
  • Last two months bank statements (real statements, not printout or screen shots, all pages)
  • Your most recent 401(k) or other retirement account statement.
  • W2’s (all jobs, last two years)
  • Most recently filed Federal Tax Return (all schedules) State return NOT needed

Common Additional Items

  • Documentation to verify additional income, such as child support, alimony or a pension (recent award letters, and divorce decrees)
  • Last TWO years business and personal federal tax returns if self-employed or own rental property
  • Full copy of bankruptcy papers, including the discharge notice
  • Old Foreclosure? – Need the Sheriff Certificate of Sale (available from the county)
  • Old Short-sale?  Copy of HUD1 Settlement Statement from the actual sale


Get pre-approved, not just pre-qualified

Everyone knows it is smart to get lender Pre-Approved before starting to look for a home, yet many people are actively looking at homes thinking they are Pre-Approved, when in reality, they are only Pre-Qualified.

Pre-Approved or Pre-Qualified? So what is the difference?

welcome2_FTHB_1As a Loan Officer for over 20-years, I can tell you story after story of people who thought they were Pre-Approved, signed a purchase agreement, gave notice on their apartment, only to be told a week before closing that they were denied.  The vast majority of these people, calling me to see if I can magically help them had two big items in common:

  1. They applied at a bank or credit union
  2. They NEVER supplied the lender with all (or even any) basic supporting documents up front.

Simply put, if you didn’t supply current pay stubs, bank statements, W2’s, and Tax returns, YOU ARE NOT PRE-APPROVED – No matter what they tell you!

Looking to buy a home in Minnesota, Wisconsin, or South Dakota? Don’t have your dream fall apart at the last minute, get properly Pre-Approved for a home loan today.

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Losing offers to cash buyers? Here is how to win with a loan

You are fully pre-approved, and actively looking for homes with a Real Estate Agent.  You find the perfect home, but there are multiple offers, and one of them is cash.  Panic sets in, but don’t worry.

Sellers love cash buyers for two main reasons. The first one is super obvious – quick closings.  The second, but bigger scare, is any lender related issues.  Is the client “really” qualified?  Will the house appraise OK? Will the lender require something to be repaired?  How long will it take to close?

Real Estate, Minnesota, Minneapolis, for sale, mortgage rates, interest rates
Get Pre-Approved Today – Click HERE

Ways to beat cash offers: 

If possible, try these tips to make you are your offer as good, or better than a cash offer.

Bigger Down Payment

While it has no bearing in reality, both Real Estate Agents and sellers think you are a more qualified buyer if you put more money down.  So try a bigger down payment if you possibly can afford it.  Interesting, the #1 best performing mortgage loan with the least foreclosures in the market is a zero down payment VA Loan.

Forget the Official Inspection

Most buyers opt to have a home inspection done. Most official inspections find no major items that you likely didn’t see already yourself.  Most buyers end up nit-picking minor little items, then ask the seller to “fix” everything. This is very annoying to sellers.  Look the house over good by yourself, and then skip the official inspection.

Change your price point

Are you constantly being out bid?  Everyone else seem to be willing to pay more?  Consider looking at homes in a slightly lower price point. By looking at less expensive homes, you can be the one that puts in an offer over the asking price, and winds the deal.

Closing Costs

All loans have closing costs.  It is very common to ask the seller to pay your closing costs. The seller isn’t really paying anything, rather it is just a way for the buyer to pay the costs over time, versus paying up front at closing.

For example: If you offer $205,000 and ask the seller to pay $5000 on your behalf, the sellers net is $200,000.  If you offer $200,000 without asking for anything, the sellers net is still $200,000. Unfortunately, most sellers feel like you are ripping them off when you ask for seller concessions. They add up in the sellers mind, which works against you. Try not to ask for ANY concessions, not even a “Home Warranty” (99.9% of the time you’d never need anyway).

Try to talk to the seller

Buying and selling a home can be very emotional.  Talking to the seller about how you’d love to raise your three kids there, just like the seller raised their kids there has serious emotional pull.  It goes a long way when fighting against a typically lower cash offer from someone who just plans of flipping the home.

Winning a bid with a loan

Fighting cash buyers can be discouraging. But, just because they’re dealing in cash doesn’t mean they win. Many investors think they can low-ball with cash.  Show you are super serious with these ideas, and you’ll have a winning bid!


Average Home Buyer Numbers

fico_graphMinneapolis, MN:  According to a recent information from EllieMae, the average mortgage customer today has the following status:

  • Average credit score: 743
  • Average down payment: 19%
  • Average housing debt ratio: 25% of income
  • Average overall debt ratio: 35% of income
  • Average score of a denied client: 702

Where do you fit?

Do NOT let this fool you.  I was rather shocked to read this information. That doesn’t sound like my average customer!

Best advice? Contact a local licensed mortgage professional.  Provide them with a full application, and let them determine if you qualify for a mortgage loan with your credit score, your income, and your down payment size.