12M Consumers May Get Credit-Score Boost

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Have a Bad Credit Score? It Could Soon Get Better—but Is It Enough to Buy a Home?

The three largest credit-reporting agencies will begin cleaning up credit reports in July, which could help lift the credit scores of about 12 million consumers.

In a survey by the Federal Trade Commission, one in four people say they spot errors in their credit reports, most commonly concerning tax liens and civil judgments. Up to half of tax lien data on a credit report is inaccurate or incomplete, says Eric J. Ellman, senior vice president for public policy and legal affairs at the Consumer Data Industry Association. Civil judgments—which means a court has ruled a person owes money—also tend to be ripe with errors or omissions on a credit report, experts say. Consumers can dispute the errors, but the process can be cumbersome.

Beginning July 1, Equifax, Experian, and TransUnion will automatically exclude tax lien and civil judgment records from credit reports if they are missing a person’s name, address, Social Security number, or date of birth. Claims that do contain this key information, however, will remain on credit reports.

Six percent of Americans with a credit score—or 12 million— likely will see their score go up once the new policy takes effect. About 11 million could see an increase of about 20 points. “A lot of people who have liens or judgments against them already have crummy credit to begin with,” says Keith Gumbinger, vice president at HSH.com, a mortgage resource website. “A 10- or 20-point increase isn’t going to make a difference for a lot of borrowers.”

But borrowers who are on the cusp of qualifying for a home loan may stand to benefit the most. For example, Gumbinger says, a would-be buyer with a credit score of 570 who receives a 10-point uptick may be able to qualify for an FHA loan. FHA loans require a minimum 580 credit score.

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Source: “Have a Bad Credit Score? It Could Soon Get Better – But Is it Enough to Buy a Home?” Realtor.com® (June 22, 2017)

6 Reasons the VA Loan Blows Other Loans Away!

6 Reasons the VA Loan Blows Other Loans Away!  And Tips on How to Use it…

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In this awesome article, we're going to share with you 6 reasons why the VA Loan Blows away other loans such as Conventional and FHA Loans!  Be sure to read it to the end for many other home-buying resources!

For years past, there seems to have been a stigma against VA loans in Real Estate, and we don’t get how it still exists!!

VA Loans were originally part of the original GI Bill passed in 1944 to assist those who served our country by allowing them a straight-forward shot at owning a home.  Fast-forward to today and the VA Loan is regarded by many to be the best loan product available to our Active-Duty and Honorable Prior-Service military (if you’ve earned it by service to our country).

Let’s get started!

#1. No down payment required (yes—this means as little as $0 to buy a house)

This is the most significant aspect of the VA Loan program to to most VA home buyers!  This allows VA borrowers to STOP throwing their money away on RENT and instead—OWN their home—with no money down!

Let’s say for example that the average home on the market is selling for around $500,000.  Let’s compare the out-of-pocket money costs due at Close of Escrow (“COE”) for these 3 types of loan programs:

Herein lies one of the biggest advantages to the VA Loan: while the average homebuyer must set aside money over many years to save enough for a large down payment (and therefore possibly missing out on any opportunities along the way), the VA Loan allows Veterans and Active-Duty Service-members to purchase a home—for NOTHING down.

Note: Even if a VA Borrower DID have $100k sitting around for a down-payment, that’s still a large chunk of change to part with!  The option of holding onto liquid [cash] assets rather than placing them into a long-term non-liquid asset such as a house is valuable in and of itself.  This allows you to purchase a home without the major opportunity cost of giving up your savings, should an investment opportunity present itself!

This is big, but there’s more…

#2. No Private Mortgage Insurance (“PMI”)

Ok, so I said #1 was the best part, but this is pretty awesome too.  With nearly any other loan program, if you have anything less than 20% down on a property, you’ll have what’s called “Private Mortgage Insurance” which is pretty much mandatory insurance to protect the lender in case you default on the property.

Note: Private Mortgage Insurance is for the sole benefit of the lender and the guarantor of the loan program (for example, the VA for the VA Loan, and the FHA for the FHA Loan) and does not benefit you the borrower in any way, other than that its existence allows for riskier loans to be made available (lower down payment loans; less-than-prime credit score loans, etc).  

With a VA Loan, there is NO Private Mortgage Insurance!!  This not only saves you hundreds to thousands of dollars annually compared to a loan with PMI, but it also allows for you to be approved for a larger loan than you would with PMI premiums, considering your Debt-to-Income (“DTI”) ratio won’t have any PMI dragging it down!

Now there is a VA Funding Fee* of 2.15% of the purchase price for first-time VA Loan borrowers, and 3.3% for subsequent loans. One great thing about this fee however is that it does NOT have to be paid out-of-pocket and may be added to the loan balance—making this a truly ZERO-DOWN program to purchase a home.

The purpose of this one-time funding fee is to minimize the risk for the VA which guarantees the loan and allows for the program to continue.

*NOTE: If you are a Veteran receiving compensation for a service-connected disability rating, you are EXEMPT from the VA Funding Fee!

Let’s say for example that you were to buy a property for $500,000 with an FHA Loan and you placed down the required 3.5% ($17,500) as your down payment.  For the life of this loan (until you sell the home, refinance or pay it off), you would owe a monthly PMI payment starting at $348/month ON TOP of your regular mortgage payment.

Note: This is an estimate only and may be higher or lower depending on the specific loan scenario. This payment amount would also go down through the years, considering it is 0.85% annually of the remaining balance on the loan.

When obtaining the loan, you would also be required to pay the required “up-front PMI” of 1.75% of the base loan amount, which may typically be simply added onto the loan balance.

For example, the base loan balance on this loan would be $482,500 ($500,000 – $17,500). The up-front PMI of 1.75% of $482,500 would be $8,444.

See below comparison chart to see the differences between these 3 hypothetical loans.

Now, some lenders will claim to have “low down payment programs” with no PMI, but you can be sure they are charging you more one way or another.  For many conventional low down payment programs, they offer this by increasing the interest rate significantly from what you would typically be paying.  This doesn’t mean it’s a bad deal, but it certainly has its down-falls compared with the VA Loan.

#3. LOW interest rates

As mentioned above, most other low/no money down loan programs come with a caveat PMI and/or higher interest rates.  The awesome thing about the VA Loan is that—historically—VA Loan rates typically beat out FHA and Conventional Loan rates!

Interest rates are a big deal for anyone wanting to stretch their dollar, especially when keeping your home for a long period of time. For example, see the table below to compare monthly payments at different fixed interest rates.

As you can see from the table above, a rate that is even just 1% lower can save you hundreds of dollars per month!  This is a major benefit to Veterans using the VA Loan.

Please note that interest rates vary from day-to-day, so what’s considered normal today may be unheard of in five years.  Once you lock in a 15 or 30 year fixed rate however, your payment is set, so you don’t have to worry about fluctuations in the market.

#4. Greater flexibility with credit and income requirements

When comparing the VA Loan to most Conventional Loan programs, you will often find that the VA guidelines offer greater flexibility for borrowers with some bumps and bruises on their credit or those that are pushing the typical Debt-to-Income thresholds.

Although hypothetically speaking a borrower with a 580 FICO score could get approved for a VA Loan under the right circumstances, the ideal minimum is 620 (which is still pretty darn flexible!).

#5. Use it for a detached house, a condo, or even a 2-4 unit INCOME property!!

This is one of my personal favorite advantages of this program.  While you can obtain an FHA or Conventional Loan for 2-4 units, only with the VA Loan can you use leverage to the MAX by purchasing multiple units for NO MONEY DOWN!With an FHA or Conventional Loan, your down-payment will go up proportionally to your purchase price.  With the VA Loan however, so long as you stay below your County’s VA Loan Limit (find out your County VA Loan Limit HERE) then you can purchase up to a FOUR unit property with your VA Loan!  This means you could—in theory—purchase a four-unit property (so long as you live in ONE of the units for at least 12 months) and rent the other three units out and use the rent money to pay for your mortgage!

So, when you’re picking your neighborhood and search for homes, remember that you have options with the VA Loan, so make sure you’re picking the one that makes most sense to you!

[Using the VA Loan for multi-family income properties] can be a very profitable move when executed correctly!  We’ve helped several of our VA Loan clients purchase 2-4 unit CASH-FLOW properties with their VA Loan and the general consensus is that it was the best investment they ever made!

Note:  For condos/town houses with condominium ownership (shared interest in common areas), the complex must be on the VA Approved Condos list within the VA Website Portal. This does not apply to PUDs (Planned Unit Developments), however.  In most cities, there are plenty of approved complexes to choose from, but it is something to keep in mind when searching for a home.  A similar list applies to FHA-eligible complexes as well.  The search in the VA Website Portal can be confusing and difficult to use.  If you’re a VA Buyer and you can’t find a certain complex in the portal, don’t give up! Give us a call and we’ll be happy to help! (657) 216-5898.

#6. Use it for LIFE!

Get this—you can use the VA Loan over and over again—so long as you sell/pay-off your previous VA Loan under good standing.  Sure, there are other loan programs promising low down payments, no PMI etc.  As we discussed above, many of these have other costs associated with them in one form or another—whether it is PMI or high interest rates.

While these programs may come and go and change through the years (example: FHA recently changed the PMI to stick with the loan for life, while previously it was only 5 years), the VA Loan has pretty much only gotten better for our Servicemen and Servicewomen through the years.

Note:  Contrary to popular belief, it is even possible to obtain a SECOND VA Loan (while keeping your first)!  This is called a “Second-tier Entitlement” and under certain circumstances, allows a service member to obtain a full or partial entitlement on a second property, provided the circumstances meet the VA criteria! (see HERE for some examples of obtaining a SECOND VA Loan while keeping the first).

Summary

So to put it all together: If you have earned the benefit of the VA Loan, with it, you can buy a property for no money down with no PMI and a lower interest rate than most other loan programs—even use it for an INCOME-generating property—and use it again and again for years to come.

If you’re Active Duty military or a Veteran, THANK YOU for your service to our great country.  The VA Loan is a hard-earned reward and you deserve to know about the benefits it provides to you.

One of the first things you’ll most likely want to do first is getting pre-approved , and we can also help you search the MLS for homes for sale (no, not Zillow or Trulia --a search that's directly syndicated to the Multiple Listing System)!

For more information on the VA Loan in Southern California, check out our site!

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Source: Jed Bratt, The Real Estate Jedi, March 7, 2016

Save energy. Save money. Save Earth.

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Here are some easy tips for saving money on your energy bills and being friendly to the environment at the same time. With a few simple changes, you could be saving quite a lot of money. Take a look at this infographic for more information.

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Source: AFN Media

Fannie Mae To Ease Financial Standards

Fannie Mae Will Ease Financial Standards for Mortgage Applicants

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It’s the No. 1 reason that mortgage applicants nationwide get rejected: They’re carrying too much debt relative to their monthly incomes. It’s especially a deal-killer for millennials early in their careers who have to stretch every month to pay the rent and other bills.

But here’s some good news: The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, potentially opening the door to home-purchase mortgages for large numbers of new buyers. Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29.

DTI is essentially a ratio that compares your gross monthly income with your monthly payment on all debt accounts — credit cards, auto loans, student loans, etc., plus the projected payments on the new mortgage you are seeking. If you’ve got $7,000 in household monthly income and $3,000 in monthly debt payments, your DTI is 43 percent. If you’ve got the same income but $4,000 in debt payments, your DTI is 57 percent.

In the mortgage arena, the lower your DTI ratio, the better. The federal “qualified mortgage” rule sets the safe maximum at 43 percent, though Fannie Mae, Freddie Mac and the Federal Housing Administration all have exemptions allowing them to buy or insure loans with higher ratios.

Studies by the Federal Reserve and FICO, the credit-scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor. And for good reason: If you are loaded down with monthly debts, you’re at a higher statistical risk of falling behind on your mortgage payments.

Using data spanning nearly a decade and a half, Fannie’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

“We feel very comfortable” with the increased DTI ceiling, Steve Holden, Fannie’s vice president of single family analytics, said in an interview. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs. They make significant down payments, for example, or they’ve got reserves of 12 months or more set aside to handle a financial emergency without missing a mortgage payment. As a result, analysts concluded that there’s some room to treat these applicants differently than before.

Lenders are welcoming the change. “It’s a big deal,” says Joe Petrowsky, owner of Right Trac Financial Group in the Hartford, Conn., area. “There are so many clients that end up above the 45 percent debt ratio threshold” who get rejected, he said. Now they’ve got a shot.

That doesn’t mean everybody with a DTI higher than 45 percent is going to get approved under the new policy. As an applicant, you’ll still need to be vetted by Fannie’s automated underwriting system, which examines the totality of your application, including the down payment, your income, credit scores, loan-to-value ratio and a slew of other indexes. The system weighs the good and the not-so-good in your application, and then decides whether you meet the company’s standards.

Fannie’s change may be most important to home buyers whose DTIs now limit them to just one option in the marketplace: an FHA loan. FHA traditionally has been generous when it comes to debt burdens: It allows DTIs well in excess of 50 percent for some borrowers.

But FHA has a major drawback, in Petrowsky’s view. It requires most borrowers to keep paying mortgage insurance premiums for the life of the loan — long after any real risk of financial loss to FHA has disappeared. Fannie Mae, on the other hand, uses private mortgage insurance on its low-down-payment loans, the premiums on which are canceled automatically when the principal balance drops to 78 percent of the original property value. Freddie Mac, another major player in the market, also uses private mortgage insurance and sometimes will accept loan applications with DTIs above 45 percent.

The big downside with both Fannie and Freddie: Their credit-score requirements tend to be more restrictive than FHA’s. So if you have a FICO score in the mid-600s and high debt burdens, FHA may still be your main mortgage option, even with Fannie’s new, friendlier approach on DTI.

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Source: Kenneth R. Harney, Washington Post