Tag Archive for: Credit Score

Tips to improve your credit score

Five Ways to Improve Your Credit Score Before Buying a House

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House hunting is an exciting time, but before you leap into finding the perfect home it’s important to do the prep work. One of the best ways you can set yourself up for success is by taking a close look at your credit score. Your credit score is key to determining the interest rate you will pay on your mortgage.

Here are five ways you can improve your credit score to get the best rate possible.

Know Your Score

It is a good idea to know your credit score before you take on any big investment. After paying off debt, it can take some time to see the change reflected on your score. This is why we recommend checking your score annually.  Visit www.usa.gov/credit-reports for information on how to check your credit report.

Identify and Fix Errors

Once you have your credit report in hand, it is important to take a close look and ensure there are no errors. You want to look at your accounts and balances to verify they are at accurate amounts. Keep in mind it may take a while for balances to be updated on your credit score after a recent payment. If you notice any errors or suspicious activity on any of your credit reports, contact the credit bureau issuing that report and have them correct the information.

Pay Down Debt

Not all debt is inherently bad, but having a lot of revolving debt makes you less appealing to lenders. It is a good practice to pay off as much as you can. At the least ensure you make the minimum payment each month, and if possible, aim for a larger amount. It may be beneficial to consider asking for higher credit limits. Higher limits will improve your credit utilization — if you don’t increase your balance to match.

Don’t Miss Payments

Keeping your accounts in good standing is more important than you think. Even missing a few payments can bring down an otherwise excellent record. Setting up automatic payments using a bank account routing number is the best way to ensure no errors are made.

Limit your Credit Inquiries

It may be tempting to apply for loans and cards due to intriguing bonuses and benefits, but all these applications generate hard credit inquiries. Be mindful of inquiries you decide to opt-in for and be confident that you will be approved. It is important to remember that no matter how tempting, every single inquiry shows up on your credit report and can easily hurt your score.

The more you know about your credit, the easier it will be to work on improving your score. Most credit scores range from 300 to 850 and rank from bad to excellent. Having a higher score shows the lender you are at a lower risk of deficiency and therefore receiving an offer for a lower interest rate. You want to aim for a credit score between 720 and 850.

Each positive action is one step closer to receiving the best interest rate possible and landing your dream home!

Spring Welcome Mat

How to Get Pre-Approved for a Mortgage

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In a competitive market, it pays to be pre-approved.

We strongly encourage our customers (as well as our friends and family!) to get pre-approved before they start house hunting.

To get pre-approved for a mortgage, you will need to provide some personal and financial information to your Loan Officer.

Here are some of the things you will need to have.

  • Proof of income: You will need to provide proof of your income, which can include recent pay stubs, W2s & tax returns.
  • Employment verification: The lender may need to verify your employment, so you will need to provide contact information for your employer.
  • Credit score: Your credit score is an important factor in the mortgage pre-approval process. You can get a free credit report from one of the major credit bureaus, Equifax, TransUnion or Experian, to check your credit score before you apply.
  • Debt-to-income ratio: Lenders will want to know your debt-to-income ratio, which is the amount of debt you have compared to your income. You will need to provide information on any outstanding debts, such as credit card balances or car loans.
  • Down payment and closing costs: You may need to have some money saved for a down payment on the house you want to buy. The amount of the down payment will depend on the price of the house and the loan program that’s best for your unique situation. Some programs do not require a down payment, but you may still be responsible for covering closing costs.
  • Identification: You will need to provide a government-issued ID, such as a driver’s license or passport.

Once you have provided all the necessary information, your Loan Officer will review your application and let you know if you are pre-approved for a mortgage.

After you have your pre-approval letter in hand, and you know how much you can afford to spend on a home, let the house hunting begin!

First-Time Buyer

Loan Programs Available for First-Time Buyers

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Michigan Mortgage offers multiple loan options designed to help first-time home buyers achieve the American Dream.

FHA Loans.

First-Time BuyerThese loans are backed by the Federal Housing Administration (FHA). This type of loan may be more attractive to someone who has less than perfect credit. They require a down payment of at least 3.5% of the purchase price.

VA Loans.

These loans are available to military veterans and active-duty service members (and their families) and are backed by the Department of Veterans Affairs (VA). They do not required a down payment and may have more flexible credit requirements.

USDA Loans.

These loans are available to buyers in rural areas and are backed by the U.S. Department of Agriculture (USDA). They do not require a down payment so this loan may be perfect for someone with less money saved.

Conventional Loans.

These loans are not back by the government and may have stricter credit and down payment requirements. However, they often have lower mortgage insurance premiums and may be a good option for buyers with good credit and a down payment as low as 3% of the purchase price.

MSHDA Loans.

The MI State Housing Development Authority (MSHDA) offers assistance programs for first-time home buyers, including down payment assistance zero-interest loans.

At Michigan Mortgage, we specialize in making the process as easy as possible for first-time buyers. We are Michigan’s leading lender for first-time buyers and are always available outside of “normal” business hours to help guide you home.

To see how we can help you, contact us today!

Old Technology

Tips to Maintain a Good Credit Score

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If you’re in the market for a new home, your credit score will determine whether or not you’re eligible. Your score will determine the loan program you qualify for and your interest rate. Your credit score may be the single most important asset you have.

You spend years building your score – here are a few tips to help you maintain it.

  1. Make your payments on time. According to experts, a large portion of your credit score (35 percent, to be exact) is calculated based on payment history. Making your payments on time (within 30 days of the due date), every time can greatly impact your score. This includes credit card bills or any loans you may have, such as auto loans or student loans, your rent, utilities, phone bill and so on.

Consider setting up autopay when it’s available so you don’t run the risk of missing payments.

  1. Keep your balances low. 30%. That’s the magic number! As soon as your credit card balance exceeds 30% of your credit limit, your credit score will decrease. Your score will continue to decrease until you bring your balance below the threshold.

Experts recommend that you pay off your entire balance every month. We know that’s not always realistic, but you should always at least make the minimum payment.

  1. Be cautious when opening new accounts. According to Experian, “Each application can lead to a hard inquiry, which may hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores.”

There is one exception to this rule. If you’re shopping for a new car or home, it’s OK to shop around and have multiple lenders pull your credit. If these credit pulls occur during the same time frame, they are often ignored by credit bureaus.

  1. Check your credit score regularly. If you practice tips 1 – 3 but forget to do #4, you’re setting yourself up for possible risk. Mistakes are known to happen, and reporting errors can have a negative impact on your score. If someone steals your identity and opens a new line of credit in your name, how will you know if you don’t regularly monitor your score?

You are entitled to a free annual credit report from each of the three credit reporting agencies. Click here to order your free reports.

If you find a credit reporting error, dispute the mistakes with the appropriate credit reporting agency and your score may improve.

If you have additional questions about your credit score, give us a call! We’re happy to help in any way we can.

Fall Stoop

How do interest rates impact your home buying power?

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If you’re researching mortgages, you know that they come with interest rates. What exactly is a mortgage interest rate, and how much does it impact your buying power? What can you do to improve the interest rate you’re offered? We answer those questions in this article.

Your mortgage interest rate has a direct impact on how much house you can afford. What exactly is a mortgage interest rate?

Fall StoopA mortgage is a loan, and like other bank loans, it comes with an interest rate – it’s how lenders make enough money to stay in business. This is usually a percentage of the loan amount, and you pay it off alongside the principal. Usually, this makes up your monthly mortgage payment, along with things like private mortgage insurance (PMI), property taxes, and perhaps homeowner insurance.

How Your Mortgage Interest Rate Affects You

As the interest rate is part of your monthly mortgage payment, it directly affects how much of a loan you can afford. Even a small change in your interest rate can add quite a bit. For example, let’s say you bought one of Michigan’s average-priced houses for $210,000.

You managed a 10% down payment and got a conventional 30-year loan. At a 4% interest rate, you’re paying 1,264.40 per month. At 5% interest, this payment increases to $1,376.68. That’s $112 more per month – and 10 more PMI payments.

So, it’s pretty obvious how much your budget is impacted by mortgage interest rates. But what factors affect the interest rates themselves?

What Affects Mortgage Interest Rates?

Banks calculate interest rates based on many things, including the overall economic and market picture and the qualifications of each prospective borrower. We’ve already talked about factors that influence mortgage interest rates elsewhere in this blog, so let’s just do a quick overview of some of the factors you can influence:

  1. Your credit score and credit history.
  2. Your income and debt.
  3. Your down payment amount.
  4. The type of loan you choose.

Although a lot has been said about the Federal Reserve rate rising, it’s important to realize that this doesn’t directly affect your mortgage interest rate. (It does affect other types of loans, like credit cards.) However, the Fed is a good indicator of where the economy is heading, so it doesn’t hurt to keep an eye on it.

co-borrower

Benefits of Having a Co-Borrower

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It’s no secret – home prices in Michigan are on the rise. If you’re in the market for a new home and are wondering whether or not you can afford a home on your own, bringing on a co-borrower may be a possibility.

You may not need a co-borrower to qualify, but there are benefits to having one.

co-borrowerYou can enter the market sooner. In today’s market, it’s all about speed and strength. Having a co-borrower added to your mortgage application can increase your buying power and help you enter the competitive market with your best foot forward.

You can afford a bigger home. If you add a co-borrower to your mortgage application, it’s likely that you’ll be able to afford a larger home at a larger price point. Your Loan Officer will combine your income (if the co-borrower credit qualifies) to determine how much you can spend on a new home.

You’ll have more money for a down payment. Much like income, as stated above, if a co-borrower is added to your mortgage application, their assets are included in financing calculations. Between the two of you, you may have more money saved for a down payment.

Like all things, there are positives and negatives to adding a co-borrower to your mortgage application.

Here are a few things to keep in mind.

Your co-borrower must credit qualify. As mentioned earlier, co-borrower must credit qualify to be included on your mortgage application. We will verify your co-borrower’s income and credit before proceeding. We recommend that you have these conversations with your co-borrower before application is taken.

You are both liable for the loan. Before you add a co-borrower to your mortgage application, please make sure you’re comfortable with the long-term consequences. If a payment is missed or the home is entered into foreclosure, you’re both liable and your credit scores will be impacted.

Trust is key.

If you’re interested in purchasing a new home, we recommend that you sit down with an experienced Loan Officer to better understand your options. We’re here to help any way we can!

Meeting

Five Mortgage Interest Rate Factors You Control

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Did you know that over 30 factors go into selecting a mortgage interest rate? In this post, we look at five things you can improve – and two factors you can’t control at all.

MeetingWhen you’re considering a mortgage, your first thought is probably “Can I afford it?” A mortgage lender asks themselves a similar question: “Will this person be able to repay the loan?” To the lender, giving you a mortgage is a risk, no matter how great your credit history is or how much money you make. To offset some of the risk, lenders charge interest on the mortgage.

A mortgage interest rate is usually calculated as a percentage of your loan amount. It’s added to the amount borrowed; most of your monthly payments go toward the principal, but some go to the interest rate. This rate can be fixed (i.e. the same for the entire loan period) or it can be variable (i.e. the rate rises or lowers at intervals throughout the loan period).

So, what affects the interest rate a lender offers you?

Five Mortgage Interest Rate Factors You (Mostly) Control

As we’ve said before on this blog, mortgage interest rates are not just about the borrower. They’re also about the lender, the market, and the economy as a whole. But there are some things you can control – at least partly:

  • Credit Score. Your credit score is a big factor in determining your creditworthiness, or how much of a risk you represent to the lender. A credit score of under 640 can mean a higher interest rate; a score of 740 or above can get you a lower rate. Here’s how you can improve your credit score.
  • Debt Ratio. The amount and kind of debt you have will impact your credit score, but lenders also look at the debt ratio itself. As a general rule, no more than 43% of your monthly income should go to defraying debt (e.g. car payments, credit cards, etc.). The reason is simple: the more debts you have, the more likely it is that you’ll have a hard time keeping up the payments.
  • Down Payment / Loan Amount. A larger down payment can lower your loan amount, which means you could get a lower interest rate. If, for example, you pay 20% down instead of 10% down, you’ve removed some of the lender’s risk. Your reward: a lower interest rate and a substantial amount of savings.
  • Loan Type.  Different loan types come with different requirements, guidelines, and interest rates. Check out these types of home loans to learn more.
  • Home Location, Price, and Use. Ok, you may not have a lot of wiggle room on your home location or budget – but if you’re looking for value, you may want to shop around. Homes in different areas of the same city can be priced higher or lower according to demand; price impacts the loan amount, which affects the interest rate. And if you’re shopping for your primary residence (as opposed to a second home, vacation home, etc.), you’ll likely get a lower interest rate, too.

Two Mortgage Interest Rate Factors You Can’t Control

No matter who you are or what you make, the following factors are outside of your control. Unfortunately, they still affect your mortgage interest rate:

  • Local Real Estate Market Conditions. If home sales are slow in your area, there’s less demand for mortgages. This means mortgage lenders have to compete a bit for business, which translates into a better deal for you. On the other hand, moving into a hot market means higher prices, higher demand, and higher interest rates.
  • The Economy. During an economic downturn, mortgage rates tend to decline for the same reason as mentioned above: a lack of demand. During an economic upturn, people are more apt to start house shopping again, which drives up demand and interest rates.

So, if you’re shopping for a mortgage with a great interest rate, keep these factors in mind. Maybe you can increase your down payment or reduce your debt. Don’t forget to compare offers from different lenders; that too can help you find a better interest rate. If you’re not sure what your next move should be, talk with one of our mortgage specialists.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1.

Image of a family hanging up an American flag

Military Vets: Get a VA Home Loan

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In addition to being one of the country’s leading lenders to first-time home buyers, Michigan Mortgage specializes in helping veterans of the United States military and their families get into their dream homes.

Veterans Affairs (VA) mortgages make it easier for veterans to obtain financing for home ownership. VA loans are available to veterans and active military members. VA loans are guaranteed by the Department of Veterans Affairs and are somewhat easier to qualify for than conventional mortgages.

Image of a family hanging up an American flagVA Home Loan Benefits

VA loans are great because:

  • They can be obtained without any down payment.
  • Mortgage insurance is not required even if you put less than 20% down.
  • The VA does not require a specific credit score for a VA loan.

Although the costs of getting a VA loan are generally lower than they are for other types of low-down-payment mortgages, VA loans do carry a one-time funding fee that varies depending on the down payment and the type of veteran.

According to the VA, veterans who have taken advantage of the program have some of the lowest home ownership default rates, and that the agency also helped 80,000 VA borrowers avoid foreclosure in 2014, saving taxpayers $2.8 billion.

VA Loan Requirements

VA loans are offered to most active duty, reserve or National Guard and veteran service members and even some surviving spouses.

Veterans are able to borrow over $400,000 without any down payment on a principal residence home. According to the VA, almost 90% of VA loans have no down payment.

There’s also no minimum credit score requirement for a VA loan, while most home mortgage loans require a credit score of at least 620 for conventional loans or 580 for most FHA loans. A VA loan can also be used to refinance an existing loan.

VA loans do have specific requirements that most other loans don’t. For instance, all work on the home must be completed before the inspection. Also, there can’t be chipped or peeling paint inside or out, or termites or mold or loose handrails. In other areas, a VA inspection can be a bit more stringent. For example, while most home inspectors merely turn on the home’s furnace to see if it works, the VA requires inspectors to verify that the heat source can keep pipes from freezing.

Are you a vet? Reach out to one of our experienced Loan Officers to learn more. 

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Spring Welcome Mat

Tips for Buying a Home This Spring

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The spring homebuying season is upon us! It’s the most popular time to buy a home, but also the most competitive. What do you need to do to be ready for it?

Given the financial commitment that buying a home represents, it’s amazing how many people wade into the process with minimal preparation. Here are six steps to get you ready to tackle the busy spring market and put you in position to get a good deal on a great home.

#1: Check your credit

Yes, you may be tired of hearing it, but checking your credit is the first step you want to take in buying a home. Even if you’re confident that you’ve got excellent credit, undiscovered errors in your report could drag down your score – and result in a higher interest rate on a mortgage. Your credit score will also affect the mortgage rate you can obtain and the cost of the loan as a result.

You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting companies – Equifax, Experian and Transunion. You can order them through the official site at www.annualcreditreport.com. Once you have them, check for any errors in the payment history or status of your credit accounts and follow the instructions for correcting any that you find.

Your free credit reports don’t include your credit scores, which are what lenders use when evaluating you for a mortgage. For those you typically need to pay, either by purchasing them directly from the three companies or by enrolling in a credit monitoring service that includes your credit scores as a free perk.

Spring Welcome Mat#2: Know what you can afford

This can be a deceptively complex problem – it’s not simply a matter of figuring out how much of a mortgage payment you can handle. You also need to take into account property taxes, homeowner’s insurance and – you’re making less than a 20 percent down payment – mortgage insurance as well. All these are typically billed with your mortgage statement.

Then you also have to consider what kind of down payment you can make, the ongoing costs of home maintenance, monthly utility bills and a reserve for unexpected repairs. You’ll probably also want to have something set aside for buying new furniture or appliances, and other purchases/expenses to make the home your own.

The standard rule of thumb is that lenders don’t want to see you spending more than 28 percent of your gross monthly income on your mortgage payment, and no more than 36 percent on loans of all types (auto, credit cards, etc.) though these are flexible. Just as important though, is how much of your earnings you want to spend on housing – 28 percent may be higher than you want to go.

#3: Consider the down payment

Your down payment isn’t just a matter of what you can put together or trying to hit a certain number. To a certain extent, the size of a down payment is a choice you make depending on how much you’re looking to borrow and the mortgage terms you’re willing to accept.

While a 20 percent down payment is considered the gold standard, it isn’t mandatory. Most lenders view 10 percent down nearly as favorably and many will let you go as low as 5. That allows you to buy a higher-priced home, but you will need to buy private mortgage insurance, which is like paying an extra half a percent or more on your mortgage rate.

If you go the FHA route, you can put as little as 3.5 percent down, which maximizes your homebuying ability but means higher fees both up front and for annual mortgage insurance.

If you’re seeking a jumbo loan or have damaged credit, lenders may require that you put at least 30 percent down in order to be approved.

#4: Do Your Research

Browse the real estate listings to see what sort of homes are being offered in your price range and where. Drive by a few of them to get a sense of the home and neighborhood in real life. Go to a few open houses to get a sense of the market and a feeling for prices. Pay particular note to homes that sell almost immediately after being listed – that’s a sign it was attractively priced, while ones that linger are likely overpriced.

You can also check local assessor’s office records online to see what other homes in the area have sold for recently, or use commercial online listings to do the same thing.

#5: Use a Realtor

A Realtor representing your interests as a buyer can be a big help when house hunting. First, they’ll be tuned into the local housing market and can help you cut through the clutter to find the properties that best match your criteria. They can also alert you when new ones are coming on the market.

#6: Be Ready to Buy

Because the spring housing market can be very competitive, you want to be ready to make an offer as soon as you find the right house. If you wait a day or two to think it over, you may find someone else has beat you to it, particularly if it’s an attractive property.

For this reason, you want to be sure to get preapproved for a mortgage before you being home shopping in earnest. Getting preapproved means choosing a lender and submitting all the financial information you need to be approved for a loan. It’s different from being prequalified, which simply means a lender gives you an estimate of what you can borrow based on unverified information you provide.

When you’re preapproved, you can show that to a seller as evidence you’re ready to buy and have the means to do so. That’s an important thing to be able to do when you may be competing with several other offers.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Why is my Credit Karma score different than my mortgage credit score?

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Credit Karma is a great tool when it comes to credit monitoring and fraud alerts, but using the free tool while applying for a mortgage can sometimes raise confusion.

Why is my Credit Karma score different than the credit score my mortgage Loan Officer is using for financing?

This is one of our most commonly asked questions, so we’d like to offer an explanation.

Most people assume that their Credit Karma score is their universal credit score when applying for a home or auto loan. When their true mortgage credit score is pulled by their Loan Officer, shock and anger typically follow. Why are they different? Did the Loan Officer pull the wrong score?

Credit Synergy said this: “The information that was pulled by Credit Karma is the same that their mortgage loan officer pulled…. the only difference is the algorithm being used. Credit Karma utilizes a Vantage scoring model, while the mortgage industry utilizes three FICO algorithms: Beacon 5.0, Classic04, FICO V2. The Vantage algorithm being used by Credit Karma is typically 50 points or so higher than a mortgage FICO score.”

Mortgage FICO scores analyze your payment history, the number of years you’ve had credit, types of credit accounts you have, and more. These tend to be much more detailed than the reports pulled by Credit Karma and other consumer credit reporting companies.

We know it’s confusing. And some of our customers’ first instinct is to reach out to a second mortgage company to compare their credit score.

Rest assured, it doesn’t matter what mortgage company or what Loan Officer pulls your credit score. The scores will always be the same when you’re applying for a mortgage (and will always be different than your Credit Karma score).

If you have more questions about your credit, or would like to apply for a mortgage with one of our experienced Loan Officers, please reach out. We’re here to help in any way we can.

Thank you for trusting us to guide you home!