Five Factors that Make Up a Credit Score

Linda Ferarri, President of Credit Resource Corporation, is an expert on credit remediation. Watch this informative video clip now and find out what five elements make up a credit score.

Five Factors that Make Up a Credit Score

Mortgage Pricing Report- October 13, 2008

If a family member asked my advice and they were scheduled to close on a mortgage purchase or refinance in the time periods noted below, I would recommend…

1-7 Days	8-20 Days	21-45 Days	46 Days Plus
Locking	Locking	Floating	Floating

Check MBS pricing here.

4:22 PM EST Market News

As predicted last Friday by “Brian Brady” and his partner Sean Purcell, the Dow Jones Industrial closed up more than 900 points today after last weeks plummet.

12:36 PM EST Market News

The Dow Jones Industrial Average is up more than 500-points in trading today. The DOW has now moved above the 9,000 mark.

9:53 AM EST Market News

Today the bond market is closed in observance of Columbus Day. That said, later this this week I’m expecting movement in mortgage rates based on the release of September’s Retail Sales report and Producer Price Index (PPI) this Wednesday.

“WOW” is the only word that expresses the speed at which the financial markets moved the last 45 days. Last week the markets were in a once-in-a-generation financial panic. Panics can build quickly, but their resolutions take time. Even though the markets over-reacted, don’t expect things to get back to normal right away. Increased troubles in the financial system have been met by increased efforts from the G-7 central banks and governments.

It’s important to remember, this is not the Great Depression, yet there is certainly some downside for the economy in the near term.

Another key point…consumer spending accounts for over 70% of GDP and all indicators point towards negative 3Q08 growth in the US economy. Part of the third quarter decline in consumer spending represents the dwindling effect of tax rebates in 2Q08. However, the lagged impact of higher energy prices is also a major factor. Higher inflation led to a year-over-year decline in real wages. When that happens, it’s hard realizing growth in real consumer spending when real wage growth is weak. Additionally, a weakening labor market will limit nominal wage growth in the near term.

On the upside, falling energy prices should help mitigate or increase discretionary consumer income. Thus, lower inflation will lift consumer purchasing power.

Also, Central banks and governments have responded very aggressively to the crisis. In the U.S., the Federal Reserve has provided significant liquidity injections through open market operations, expanded existing liquidity facilities, and introduced several new liquidity facilities.

Underneath The Hood of The Bailout Bill

Both the House and Senate passed the massive bailout bill this week.

What caused this mess and what does it mean for everyday people like us?

Take the time to listen to an interview by Brian Brady, Sean Purcell and Greg Swann addressing:

1. “The Community Reinvestment Act (original sub-prime loans), conceived in 1977 and super-charged in 1995, was the actual starting point of the “toxic loan” revolution that took our economy down.
2. The Bailout may be an instrument to keep people into homes through the “loansharking collection” principle.
3. Predictions about the convergence of low-priced and mid-priced homes through financing caps.”

Listen to Podcast here.

Did The Push To Make Every American A Homeowner Cause Fannie/Freddie Collapse?

I really hate getting partisan or political. Believe me when I tell you, BOTH Republicans and Democrats talk out both sides of their mouth. Yet today, I kept hearing Republicans blamed for the failure to regulate Fannie and Freddie properly and that’s just a plain outright lie.

Again, I’m not endorsing one party over the other, however on this housing issue one party is shifting the blame.

Simple Steps To Keep Home Insurance Down

As homeowners insurance premiums rise across the nation, Bankrate.com writes a helpful story on ways to keep your premiums down. The tips may surprise you.

Some of the highlights include:

1. Don’t think a series of small claims is better than one big claim. The smaller clains are more expensive to process for an insurer and may result in higher premiums for your home.
2. Don’t lie about your history of claims — similar to CARFAX, homeowners have a “record” that track prior filings and getting busted is only a database search away.
3. Higher credit scores can lead to lower premiums because homeowners will higher scores tend to make fewer claims.
4. Your driving records impact your premium calculation.

The article also provides a fair amount of myth-busting so it’s worth a read. A few minutes could save you some good money on your home insurance.

(Image courtesy: Spot Lite Magic & Costumes)

Subscribe to The Georgia Mortgage Cicerone:

• Subscribe by RSS feed
• Subscribe by EMAIL

Understanding The Home-Buying Process

Buying a home can be both an exciting and stressful process. Understanding the process, the players and terminology can help take the stress out of the experience and give you the confidence necessary to make the best decision for you and your family. Be patient and know once you have passed through each stage, you’re a little closer to being in you new home (that is if that’s what is best for you).

Prepare:

• You dream of buying a home
• You analyze your finances, decide how much you can afford and how much you will spend

Shop:

• You shop first for you mortgage options
• You shop for a home
• You select a home, make an offer and negotiate the price

Buy:

• The owner negotiates, you agree on a price, sign a sales contract and put up earnest money
• You obtain a mortgage
• You have the home inspected, obtain hazard insurance and prepare funds for closing. The lender and closing agents order the appraisal and title search
• The closing agent brings a clear title, deed and termite certificate. The owner brings keys for the home to the closing
• You bring the down payment, closing funds and insurance verification to the closing
• The attorney/lender/real estate professional coordinates the signing of documents and the transfer of money and ownership
• Ownership of the home is transferred to you at the closing
• You move your possessions into your new home

Care:

• You enjoy your new home and create a seasonal maintenance schedule

Understanding What A Lender Needs To Approve A Loan

Understanding what a lender needs in order to justify approval of a mortgage can be very helpful if you decide to purchase a home. The lender is looking mainly at five factors in evaluating your qualification for a home loan.

1. Cash or Capital Assets – The funds you have available for the down payment and the financial resources available after closing
2. Capacity – The continuing income for paying your monthly housing expenses and obligations
3. Credit – Your ability to manage debt and motivation to repay the mortgage
4. Collateral – Basically the house you are purchasing, which is the security for the loan (from the lenders perspective)
5. Characteristics – Other factors related to the transaction that could impact the risk of your loan

The first two factors involve your income: your yearly income and your monthly income. In deciding how well you can meet your monthly obligations, it is helpfull to make a distinction between periodic or onetime income (such as bonus or inheritance) and the steady money you count on each month for paying your bills.

The lender will ask questions such as those listed below and wil most likely ask to see supporting income.

What Do You Earn?

• Bring your most recent pay stubs
• Two years of W-2 statements
• Two years of federal tax returns

What Is Your Existing Debt?

• Bring loan statements and account numbers

What Potential Problems Could Keep You From Repaying The Mortgage?

• Bring a copy of your credit report, if you have one. The lender will order one anyway, but you want to see it before the lender, if possible, to clear up any problems.

My Family Is Driving Me Crazy!

How many times do you get upset with your co-workers, clients, family and friends? If only they understood the pressure you were under and would stop being so inconsiderate. If they could only walk a mile in your shoes!

Well Skippy, whenever I start thinking this way, I remind myself why I’m here. I’m here to serve others…it’s a reality to being successful in life and business. In fact, I think if we walked a mile in someone else’s shoes, our perspective would change dramatically.

“CLICK HERE”

 

Watch this video, it will help put some perspective back into your life and career.

Hat Tip: Chris Lengquist (thanks Chris)

Are You Thinking of Moving Up?

Whether you’re ready or not, as life changes, so do your housing needs. Families grow. Careers unfold. Lifestyles shift. One way or another, your circumstances change, and you may find yourself looking for a more comfortable home, one that’s in a new locale, or just a better place for your current living pattern.

Over the years with economic cycles and technology advances, the home financing process has changed, too. That’s why it’s critical you work with an individual that can make moving to your next home easier. With over 20 years mortgage experience and a lender with rock solid financial stability, my clients have access to a vast menu of home financing options, fast approval decisions, low down payment programs, and flexible rate, term, and closing cost options. Apply when and how it’s convenient for you – online, over the phone, or in person.

Financing a home is not a once-in-a-lifetime decision, and the financing package you used to buy your first home may not meet your needs the next time around. An experienced mortgage professional, will help you find a home financing solution that supports your current and future homeownership goals.

The majority of homeowners purchase multiple homes in their lifetimes. Each time you buy a home, you need to reevaluate your needs and goals. So whether you are trading in your first home for a larger one nearby, relocating for the tenth time, or looking to move to a new area for a lifestyle change, my team is here to help.

Pick your lender and Realtor responsibly!

Are You An Optimist, Realist or Stockdale?

In the book, Good to Great, the author Jim Collins states people fall into three different categories: 

1. The Optimist (bound to be eventually dispirited) 
2. The Realist (doom-sayer) 
3. The Stockdale Paradox

 What Is The Stockdale Paradox

 Stockdale Paradox individuals are those that retain faith they will prevail in the end, regardless of the difficulties AND at the same time “CONFRONTING” the most brutal facts of their current reality, whatever they may be.

The Stockdale Paradox is named after Admiral Jim Stockdale who was the highest ranking US military officer imprisoned in Vietnam. He was held in the “Hanoi Hilton” and repeatedly tortured over 8 years. Collins describes going to lunch with Stockdale (can you imagine?) and trying to understand how he survived 8 years as a POW while so many died after just months in captivity.

Here’s how Stockdale put it. “I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”

“Who didn’t make it out”?

“The optimists. They were the ones who said ‘we’re going to be out by Christmas’. And, Christmas would come and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. Then they died of a broken heart.”

So, on the one hand it was about unswerving faith that one will ultimately prevail while on the other hand it’s about banishing all false hopes? As usual, the guy who lived it says it best.

“You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.” 

Holding those two seemingly contradictory notions in his head simultaneously was the key to Stockdale surviving, even thriving, in his experience. And, I believe, it is a perfect summary of the mindset one must have to originate and live life successfully. You have to believe your vision will come to pass while simultaneously doing everything you can to make it happen. Yet, you can never let your belief and faith cloud your confrontation with reality.

The optimists are the hedge fund managers and the New Century’s while the Realist are the individuals/companies that will survive, yet will always be average.

Whether you are a consumer, originator, company, etc…, it’s your choice to choose the category in which you will operate.

The Home Loan Process — Part 2 of Applying For Your Loan | Final Installment

This simple, four-step walk-through to loan closing will help you understand the procedure and give you an idea of what to expect.

1. Processing

When we initially meet, I will request and collect the information needed to process your loan. Documentation requirements vary depending on the loan program you apply for, as well as your individual financial and credit profiles. Subject to your overall profile and documentation, I will send you a commitment letter detailing any documentation requirements you’ll need to meet should your loan be approved. At the same time, one of my teammates will order an appraisal. At this point, you’ll have the option to lock in your interest rates or float it.

Items We Discuss Early In The Process

Floating The Rate: You’ve applied for your loan but you’ve also decided to wait before committing to an interest rate, perhaps because you think interest rates stand a chance of going down in the short-term. Your loan can stay in a float status up until 10 days before closing in most cases. During any float period, you can stay up to date on interest rate by signing up for the daily interest rate e-mail available on my Web site. It’s important to remember, NOT locking in is something of a calculated risk.

Locking In: You and your lender commit to a range of interest rates for a specified period of time – up to 180 days for new construction loans. During that period, your interest rate range is protected from increases. If you close your loan during that period, you get the rate range. If you go beyond the lock-in period without closing, you may have to work with the rate ranges available at that time. Locking in is something of a calculated risk.

There are also some reasons why a rate could change even during a lock-in period. For instance, a change in your credit profile could occur, you might decide to change your down payment, or you might change your mind on how many discount points you want to pay.

Whether you decide to lock or float, you’ll be taking a calculated risk. It’s a tough decision, and you’re the only one who can make it. Talk with your me to get an idea of what interest rates have been doing recently. You should also find out if there are any economic events coming up that could affect mortgage rates in the short term.

2. Title Insurance

There are two types of title insurance: one protects the lender, the other protects the borrower from claims against your ownership of the property. Such claims might be made by undisclosed spouses, heirs of previous owners, creditors holding liens against previous owners, or other parties. Your lender will most likely require you to purchase a title policy, which will cover their interest in the property.

It’s up to you if you would like to purchase a policy to protect your interest in the home. I will be able to recommend a title insurance company who can provide you with additional information about the policies available in your area.

3. Homeowners Insurance

As mentioned on other posts, most mortgage lenders require proof that you’ve purchased homeowners insurance at closing.

In the event of a loss such as a fire, tornado, or burglary, homeowners insurance can pay for damages to the home, as well as for costs to repair or replace contents. If you are unable to live in your home as a result of damages, homeowners insurance can cover additional living expenses for a period of time while your home is being repaired. Homeowners insurance can also protect you from loss if someone is injured or their personal belongings are damaged while on your property.

Your Insurance company will be required to provide proof of insurance in time for your closing.

4. Closing

At your closing, you’ll go through all the final steps of securing your new loan. The most important thing to know is that all closing costs must be paid in full at this time. Make sure you work closely with your attorney and any me to find out exactly how much you’ll have to pay at closing. At this juncture, I’ll work closely with you to make sure no last-second surprises affect your closing.

Information You’ll Need To Provide — Part 1 of Applying For Your Loan

Whether we meet face-to-face or talk on the phone my initial step will be to explain and walk you through the application process. It is a simple interview, and most of the information you’ll need can be taken straight from your credit report. The amount you’ll actually need to provide on your own isn’t overwhelming.

There are generally six areas that will be covered:

• Personal Data: Full names, addresses, and Social Security numbers of all borrowers.
• Income: The amount and sources of income for all borrowers.
• Assets: Information on all assets you’ll be using to qualify for the loan. This includes things like checking and savings accounts, stocks and bonds, retirement plans, and other real estate owned.
• Debt & Obligations: Information on all outstanding debt and other financial obligations.
• Credit References: Information concerning loans or debt that have been paid, plus any other references to good credit use.
• Property Information: Specifics on the property you wish to buy, if you’ve chosen one.

How Investment Bankers Made Suprime Loans Into “AAA” Prime Loans

This video from CNBC via YouTube does a terrific job of illustrating how sub-prime mortgage defaults are impacting mortgage rates overall.

There’s some jargon in there, but overall, it’s very easy to follow.

______________________________________________

Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta.

Subscribe to The Mortgage Cicerone:

• Subscribe by RSS feed
• Subscribe by EMAIL

Get Pre-Approved Before House Hunting

Getting Ready To Buy A Home In Georgia?

The first stop on the road to homeownership is working with an experienced mortgage professional/planner. It’s extremely important you get a written preapproval letter which will show you are a serious buyer in the eyes of real estate agents and sellers. That means you can expect preferential treatment because there’s no concern that your financing will fall apart. Preapproval has other benefits, as well:

• You know exactly how much you can spend on your new home.

• You won’t waste time looking at or falling in love with properties that are out of your price range.

• There’s no nerve-wracking waiting to see if you’ll qualify to purchase a home after you’ve fallen in love with it.

• A preapproved buyer is a sure thing (if you are working with a professional), so sellers will usually accept your offer first.

• Once you select a home, your loan approval process will be expedited and simple.

One-On-One Support

As an experienced professional mortgage planner, I know the Atlanta market and will ask questions that gives me a clear picture of both your current needs and future goals. I can then help you customize a home financing program that will not only help you buy a home now, but one that can also starts you on the road to overall financial success. My team helps homebuyers every day in making the right choices for their home financing needs. Whatever your homeownership goals are, I can help you capitalize on purchase opportunities and make the most out of your home buying experience wherever you are buying in Georgia or the Atlanta area.

Extra Support When It’s Needed

If you discover you’re not qualified to buy a home right away, count on my team to work with you to overcome credit challenges. For example, I provide my clients in such a situation free confidential credit counseling advice and materials that prepares you for homeownership. You’ll work one-on-one with one of my team members who will review your credit report, develop a home purchase action and savings plan, and guide you through every step of the home financing process. It can be your quickest route to homeownership, with personal support that helps you:

• Resolve credit issues.

• Budget for a down payment.

• Establish a savings plan.

• Connect with down payment assistance programs.

• Educate, guide and prepare yourself for the responsibilities of owning a home.

______________________________________________

Larry Gallegos- Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta.

Subscribe to The Mortgage Cicerone:

• Subscribe by RSS feed
• Subscribe by EMAIL

 

Sometimes I Feel Like Michael Jackson’s Plastic Surgeon!

Over the last 16 years, I’ve seen far too many people financially over-extended. Fortunately, I’ve helped countless clients consolidate their debt utilizing strategic equity management strategies and have placed them in a situation to both save and payoff their remaining housing debt (or accumulate enough money to payoff if needed) in 10 to 20 years. Many clients did just that and today are financially set; however, some didn’t and ran up their debt again and again and again.

Since early in my originating career, I always kept in contact with my clients and in doing so, discovered both success and the not-so-success stories.

The not-so-success story clients came in two different categories. Both had run-up their debt (again) and had over-extended themselves (again). Yet, there was a key distinction between the two:

1.      One realized the behavioral pattern that put them in this situation and were truly ready to take personal responsibility to make the appropriate corrective action; and

2.      The second group while some times recognizing their consumptive behavior pattern, were still not ready to take personal responsibility to make the appropriate corrective action.

Believe me, I realize people can make mistakes and sometimes need a second (or third) chance, but how many times it too much? There were times I felt like Michael Jackson’s plastic surgeon…how many times does a person need plastic surgery? When do you say no Michael, enough is enough?

While I understand even if you say NO to a client, there are unscrupulous originators who will still do a debt consolidation loan for the client that is addicted to spending…even if it means putting them into a neutron loan*.

At what point do you say no? To tell you the truth, since every particular case is different, every particular answer is different. However, I am thoroughly convinced sometimes the best thing I must do is say no. I have to use common sense and your conscience to guide you. Over the years, I’ve developed five important questions to ask myself:

1.        Does it make sense?

2.        Have I fully counseled your clients?

3.        Is there a reason to think they will make the appropriate corrective behavioral changes?

4.        Would I be doing this loan only to make a commission?

5.        Is my conscience clear?

 

Strategic Equity Management strategies are fantastic and I believe in them to my core, however just like any tool, are they being used appropriately?

I love Mark Twain’s definition of insanity:

“Doing the same thing over and over and expecting a different result!”

Below are two links related to this subject:

Your Hometown Could Be a Saving Grace

Deep in Debt, Deeper in Denial

* Neutron Loan - Much like the Neutron Bomb, these loans leave the home intact yet destroy the homeowner financially, eventually putting them in foreclosure and/or bankruptcy court. The last thing I want for any homeowner.

Rich People Have Big Libraries…Poor People Have Big TV’s

“Rich people have big libraries…poor people have big TVs.”

Now that’s a bold statement?

However, before getting offended, think about it. Do you spend more time/money reading and educating yourself or more time in front of the television? Do you spend more money on books or big televisions, stereos and dvd’s?

One thing that has always amazed me is when an individual will not bat an eye at getting a loan for $20,000 or $30,000 to purchase a new car or truck, yet choke on their tongue when considerring getting that same amount for student loans…what gives?

In the end, if you can establish a pattern of learning and continuing education, you’ll punch your own ticket and begin the trip to long-term wealth accumulation. Invest in your education and make time for it. It will pay you back many times over.

Conventional Wisdom

Source: Canvas Beat

How To WACC Your Creditors

Brian Brady at America’s Mortgage Broker wrote a masterful article explaining how to use Weighted Average Cost of Capital (WACC) as a financial tool to calculate whether or not a borrower should refinance to consolidate their mortgages and consumer debt. Many times a potential client has an extremely low rate on their first mortgage and possibly a HELOC and other consumer debt. By calculating the WACC of the borrowers total debt, one can better determine if a refinance makes sense.

According to Brian Brandy:

“I often use a formula to analyze a client’s borrowing costs that is taken straight from a Corporate Finance textbook.  It’s called the Weighted Average Cost of Capital or WACC for short. 

I’ll give you a brief explanation, in layman’s terms, of how I perform a WACC analysis.    Assume these folks have a $350,000 first mortgage at 5.25%, a HELOC of $100,000 8.5%, and consumer debt of $50,000 at 12%.

1- I total up the amount of your debt.  ($350,000 + $100,000 + $50,000= $500,000)

2- I determine what percentage of the total debt each individual loan is :
    a- First Mortgage         ($350,000/$500,000= 70%)
    b- HELOC                     ($100,000/$500,000= 20%)
    c- Consumer Debt         ($50,000/$500,000= 10%)

3- Now, I “weight” each interest rate you pay for a before tax average cost of capital:
    a- First Mortgage         (5.25 * .7= 3.675)
    b- HELOC                     (8.5 * .2 =  1.7)
    c- Consumer Debt         (12 * .1 = 1.2)

4- Add up the weighted rates (3.675 + 1.7 + 1.2 = 6.575)

5- So , the REAL, before tax, cost-of capital for this client is really 6.575%”

Go to Brian’s full post where he goes on to explain how to also calculate the tax benefits of refinancing.

<Click Here To Read Brian’s Post>

Just Follow the Instructions

Seems Ben Stein and I have a similar trait of “endlessly putting things into categories and seeking to find  patterns in life.” While reading Stein’s article, its theme seemed particularly appropriate to achieving any goal in which you pursue (notice a pattern).  In his article, he explains the blueprint for success in most any endeavor, field or business has already been tested and documented, however the problem lies in that most people do not follow the instructions.

For example, I want to lose weight. The formula is fairly simple; burn more calories than I consume. Seems easy, doesn’t it? I can make all kinds of excuses, but the bottom line is I have to either burn more calories via exercise, ingest fewer calories or both to manage my weight loss.

Does the same formula apply to wealth accumulation, YOU BET IT DOES!! As everyday normal people, do we know how to save enough money to retire wealthy or least very comfortably? Yes we do. Problem is (much like weight loss), we know what we have to do, we just don’t do it consistently.

Click on the hyperlink below and read Ben’s article:

To Get Rich, Just Follow the Instructions

Technology and the Mortgage Business

The mortgage industry is going through a paradigm shift in the way mortgage products are delivered to clients. While the principles have not changed, the method in which they are delivered is changing with ever increasing speed.

Part of my job in delivering outstanding customer service to my clients is great communication…that is a principle. However, the paradigm shift referenced above pertains to the method in which I delivery great communication to my clients.

For example:

• Today most Americans own or have daily access to the Internet
• Two years ago, most people had never heard of a blog (your reading one now)
• Five years ago, nobody had a Blackberry that delivered their email to remotely
• Ten years ago, most individuals didn’t have an email account
• Fifteen years ago, most people did not have a cell phone

Because of these and other changes, I can now deliver excellent customer service to my clients whether they are 3 or 3,000 miles away. In many ways, because of technology, my level of communication has increasingly exceeded what was possible in the past.

Used correctly, technology not only enhances my customers experience while getting a home loan, it allows them to also better intergrate their mortgage into their overall financial situation.

For that reason, I’m always on the lookout for new ways to enhance my customers overall personal level of service.

Recently I saw a demonstration for a new product called Microsoft Surface.

Surface is indicative of the current trend in computing and technology. Instead of being about adding new features (or speeding up existing ones), it’s about doing things in a simpler, friendlier way.

This trend is made possible because of decades worth of incremental advances in technology — fast enough processors, inexpensive enough camera sensors, large enough displays, experienced and creative enough coders.

Simple, clean, easy. TiVo did it with television recording. Apple did it with the iPod and is hoping to do it with the iPhone.

This approach is what I expect from technology to operate and do what I need it to do…increase my clients overall experience.

Hopefully Microsoft Surface and others deliver on the promising prospect of simple, clean and easy computing.