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FICO Changes = Higher Credit Scores for Consumers

FICO Changes = Higher Credit Scores for Consumers

Fair Isaac Corp. will soon change their FICO scoring algorithm used in determining a person’s credit scores. It should result in higher credit scores for many consumers. FICO calls their new scoring method FICO Score 9. This method will no longer grade medical collections as harshly and it will not factor in any paid or settled consumer collection accounts in credit scores at all.

What is FICO?

FICO is the credit scoring algorithm created by Fair Issac Corp. It only uses information reported to the three major credit bureaus to grade a consumers credit worthiness. According to myfico.com, a FICO Score estimates the “level of future credit risk” of a consumer.

Consumers have three FICO Credit Scores – one for each of the three main credit bureaus (Equifax, Experian, and TransUnion). Each bureau uses the information reported to them when determining their FICO score. So while each bureau uses the same FICO scoring algorithm, the scores can differ because not every creditor or lender reports to all three bureaus.

FICO Score 9, once released, should result in higher scores for many consumers thanks to two major changes in how they will grade collection accounts.

Medical Collections

Open medical collections will no longer negatively affect your credit score as much as they do now. They will no longer be counted the same as other open consumer collection accounts.

Most major lenders have long overlooked medical collections, knowing that they do not give a true indication of a consumer’s ability to re-pay debt. An applicant who is ill-prepared to pay for a sudden major medical debt, for example, should not be graded as harshly as one that walked away from consumer debt that they had promised to pay.

Still, these collections can have a major negative impact on credit scores. And lenders are still very credit score driven. Lower scores due to medical collections can lead to higher rates, higher fees, and even loan denials.

The upcoming changes in FICO scoring will finally acknowledge what lenders have known for years; that medical collections do not represent a borrowers true ability to re-pay debt. Thankfully, credit scores will no longer suffer once these changes take effect. In fact, FICO claims that consumers can see as much as a 25 point increase in their score!

Paid/Settled Consumer Collections

As of right now, if you have older collection accounts that have been paid in full or satisfied, they can still negatively affect your credit scores for years, even though they report as being satisfied or paid.

But after FICO Score 9 takes effect, these paid/satisfied collection accounts will be dropped from your credit report altogether. They will no longer have a negative impact on your FICO scores. In other words, the new FICO scoring method will continue to count open or unpaid collections against a consumer’s score, but it will reward them by removing the collection account once it is paid or settled.

Who Benefits?

These two major changes in the FICO scoring method should open doors for a lot of consumers who will realize higher credit scores as a result. It can equate to lower rates, lower fees, and even loan approvals instead of denials. It also benefits lenders by providing a more accurate assessment of a consumer’s ability to re-pay debt.

There is no exact date for the FICO 9 Score release, but rumor has it that it will happen sometime in the Fall, 2014.

Please do not hesitate to call one of our Personal Advisers for more information. We look forward to hearing from you soon.

Veterans – Get 100% of the Cash Out of Your Home

Veterans – Get 100% of the Cash Out of Your Home

The U.S. Department of Veterans Affairs now offers a 100% Cash-Out Refinance Loan to eligible veterans. If you’re a veteran, or a surviving spouse, you now have a wonderful opportunity to use up to 100% of your home’s equity for paying off debt, paying college tuition, or just about any other purpose.

The reason lenders are willing to lend on these higher equity cash out loans is because the loans are backed by the VA.

How the 100% cash out program works

The 100% VA Cash-Out Refinance Program requires that you have sufficient income and that the loan is for a home that you’re occupying. In addition, you need the following:

Credit score of 620 or above –The VA has always allowed 100% financing with lower scores. But just about every lender capped themselves at 90 to 95% for cash VA loans with higher credit scores of 640+.

But recently, due to major changes in the industry, lenders have loosened their guidelines on VA loans. We can now lend to 100% on a VA cash out loans with a minimum credit score of 620 – which makes the Cash-Out Refinance program a truly amazing opportunity.

If you have a score lower than 620, we can still work with you. Meridian offers lower percentage (i.e. 80%) VA cash out options. Please inquire!

Certificate of Eligibility(COE) – To begin the process, you must first complete the COE (VA Form 26-1880) as well as provide evidence that you meet the eligibility guidelines spelled out below. The COE verifies to lenders that you’re eligible for a VA-backed loan.

We can help you with this form – just call us. We do ask for a copy of your DD214 (and sometimes we don’t even need that), then we pull your COE and determine eligibility.

How eligibility is determined

The VA determines eligibility using a number of factors, but in general, you’re eligible for the VA Cash-Out Refinance Program if you fall under one of the following requirements:

  • You were an active-duty veteran who served a minimum of 90 consecutive days in wartime
  • You were an active-duty veteran discharged during or after WWII without a “dishonorable” status
  • You were a peacetime veteran who served 181 consecutive days
  • You served for two years, either as an enlisted veteran with service dates after 1980, or an officer with service dates after 1981
  • You served 6 years in the Selected Reserves or National Guard
  • You’re the spouse of a deceased veteran with a service-related death and you have not re-married, or you’re a spouse of service person missing in action or a prisoner of war.

Eligibility may also be established for U.S. citizens who:

  • Served in the armed forces of a government allied with the U.S. in WWII
  • Served as a member in certain organizations, such as officers in Public Health Service, cadets in U.S. military, Air Force, or Coast Guard, midshipmen at the U.S. Naval Academy, officers in the National Oceanic and Atmospheric Administration, and merchant seamen in WW II service.

We’ll pay your appraisal fee

If you’d like help with obtaining a VA Cash-Out loan – or with determining your eligibility – please call us at 877-878-0100 or complete our contact form. We can help you complete the COE or answer any questions you have.

In addition, if you close your VA loan with Meridian, we’ll pay your home appraisal fee up front. It’s our way of thanking you for your service to our country.

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Help Your Loan Get Approved Faster

Help Your Loan Get Approved Faster

For the past twenty years, three standard mortgage practices have occurred behind the scenes during the mortgage process:

  • Verification of Employment (VOE)
  • Changing of the “mortgage clause” on your homeowner’s insurance (HOI) declaration page
  • Credit supplements, such as a Verification of Mortgage (VOM) or supplements to verify credit card or student loan monthly payments

In the past these three procedures have usually occurred without the applicant’s knowledge. The lender was just required to send in a copy of the applicant’s signed Borrower’s Authorization that gave written permission to release information. But privacy policies have tightened on the employer, HOI, and consumer-credit levels, and these standard practices now need the mortgage applicant’s verbal approval before they are completed.

If you are alerted by your Human Resources or Payroll Department that Meridian Home Mortgage is requesting a Verification of Employment, please give them permission to provide this information.

Likewise, if your HOI company lets you know they have received a request from Meridian Home Mortgage to change the mortgagee clause (basically just changing the lender name) on your insurance declaration page, please give your permission to make the change.

You may also receive a phone call from our credit vendor, CBC Innovis. This is the credit agency that Meridian uses to pull your initial credit report. Please work with CBC Innovis as quickly as you can to provide any needed information or perform any requested conference calls with your current creditors. This will help to expedite the underwriting process. If you ever feel uncomfortable returning a call to CBC Innovis or providing them with any requested information, please feel free to call your Meridian Home Mortgage contact first to verify their authenticity.

Following these three basic suggestions will help your team at Meridian prepare your loan file for underwriting in a timely manner. Please be sure to call at anytime to discuss further. We look forward to speaking with you soon.

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Your Loan is Reviewed by an Underwriter

Your Loan is Reviewed by an Underwriter

The most important step in the loan application process, after your home value is determined, is the loan review by a Conventional, FHA or VA underwriter.

It is important to know that before we submit your loan to an underwriter we do everything within our professional power, through diligent pre-processing, to make sure the underwriter has the ability to issue a Conditional Approval on every file. There are several things that you can do to help us move your loan to underwriting as quickly as possible.

Underwriting

The underwriter acts as a “gate keeper”, protecting the interest of the lender and safeguarding the limited funds they have to lend. Underwriters follow strict black-and-white guidelines established by industry investors. These guidelines are harsher than they were during the mortgage lending boom of 2002 – 2008. The days of what many industry professionals describe as “common sense underwriting” are long gone.

Once an underwriter reviews your refinance application they will issue one of three determinations: a Conditional Approval, a Suspension, or a Denial.

When a Conditional Approval is issued, a member of our Pipeline Team will call you immediately to review the approval and discuss any conditions needed before we can schedule your loan to close.

Rest assured that an underwriter issuing a Suspension or Denial on your loan does not end your relationship with Meridian Home Mortgage. This is where Meridian Home Mortgage steps in to defend you, as your advocate. We have an entire team at Meridian dedicated to overcoming underwriting objections, re-working your application, and unearthing underwriting errors.

Still, we will be candid with you at anytime during the process if we do not believe your application has an opportunity to close. Just know that we are devoted to exhausting every last ounce of effort to match your family’s financial situation to a qualified loan program.

While Meridian will be shouldering most of the work, we have come up with a small list of things that you can do to help ensure that your loan closes as quickly as possible. Please do your best to adhere to Meridian’s list of Do’s and Don’ts while your loan is being underwritten.

Here are a couple of other important things to know:

  • Turn-times vary
    Depending on the type of loan for which you are applying and the saturation of the current market, the underwriting process for your application may take up to 5-14 days. A large portion of Meridian’s service to you is to gently, but proactively, nudge the underwriter to review your file as quickly as possible.
  • Disclosure Mailings:
    You will most likely continue to receive loan disclosures throughout the process, either electronically or through the mail from your designated lender. Although there may be cover letters with these lender disclosures that state you need to sign and return them, there is no need for you to take any action. They are simply being sent to you by the lender so that they remain in compliance with State and Federal disclosure laws. Feel free to discard these documents.

We appreciate your cooperation and patience while your loan is being underwritten. Please do not hesitate to call with any questions or concerns that you might have. We look forward discussing your upcoming Conditional Approval with you very soon.

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Do’s and Don’ts While Your Loan is Being Underwritten

Do’s and Don’ts While Your Loan is Being Underwritten

Any change in your employment, income, or credit profile, no matter how small or seemingly insignificant, can adversely affect your loan approval. It is critical that you follow this list of Do’s and Don’ts while your loan is being reviewed by an underwriter:

  • Do make the minimum monthly payments on your consumer debt until your new loan closes and funds. Any deviation from this may negatively affect your mortgage application.
  • Do make sure that your mortgage payments are no more than 15-days late until your new loan closes and funds. As your application gets closer to settlement, please inform your Meridian Home Mortgage contact if you are at risk of paying your mortgage payment more than 15 days late.
    **Never pay your mortgage payment 30 or more days beyond the initial due date**
  • Do answer or return calls from the Title Company working on your application. On occasion there are outdated or unreleased liens which can cloud the ownership of your property, or similar situations which require the Title Company to contact you and request information to clear your title in preparation of your potential closing.
  • Do fax or email us any items that we request from you immediately. These items are required by the underwriter. All of the documents in your file have an expiration date. Every day that passes between the underwriter’s request and the time you provide them means additional items have the potential to expire. We will always be battling the underwriter to crunch time frames on your behalf and to immediately establish the first available closing date.
  • Do hold onto all of the pay stubs, bank statements, retirement account statements, pension statements and social security statements that you receive electronically and through the mail until your new loan closes and funds. You may be required to provide them.
  • Do not resign from your current job or retire during the loan process. If you have an opportunity to leave your current job for a better opportunity please reach-out to us prior to making a decision to determine how it might affect your loan.
  • Do not open any new credit accounts or apply for new credit accounts prior to your new mortgage loan closing. Any new account or credit inquiry can easily be identified by the underwriter and may put your application at risk. We understand there are life situations that arise, such as the need to apply for student loans to finance a child’s upcoming college semester. We ask that you discuss these types of scenarios with us prior to taking action.
  • Do not make any balance transfers on your existing credit card balances. Any new account or balance transfer may slow your mortgage application process.
  • Do not pay off any existing consumer credit accounts in full (e.g. credit cards, auto loans, etc.) unless it is through the natural progression of making your minimum monthly payment.

Following these instructions will help to prevent any delays in your loan closing. Please call us at anytime if you have any questions or if you would like to discuss any specific scenario.

New Online Credit Management Tool: ReadyForZero

New Online Credit Management Tool: ReadyForZero

Credit card debt is still a big issue for many people. According to a detailed post on NerdWallet, the average amount of credit card debt carried by U.S. households is $15,185.

Many people want to get out of debt but can get overwhelmed trying to figure it out – especially with all the conflicting information available. Questions around debt reduction include questions such as:

  • Pay the card with the largest balance or the highest interest rate first?
  • Save money while paying down debt or take money out of savings and make a lump payment?
  • Consolidate debt or just pay off the cards one by one?
  • And, which is better? Biting the bullet and paying it all of as quickly as possible (and going into what some call deprivation mode) or setting aside a specific amount each month and paying it down slowly over time while enjoying your life?

That’s why we like this new tool: ReadyForZero.

Developed by people who actually had debt, ReadyForZero helps you manage debt, track your credit and change your attitudes about money.

Manage Debt

With the basic plan (free!), you can set up a personal profile that allows you to track your progress in paying off debt. Within your profile, you link your credit card accounts. The tool then tells you which credit card to pay first and charts show your progress.

You can also upgrade your account to the Plus plan ($75 per year) which gives you two cool features: automatic payments and your credit score. You can have the system make payments for you automatically on a bi-weekly basis (26 payments a year versus 12) based on when you get paid and have cash.

Making bi-weekly payments has a number of positive benefits.

  • One, as with weight loss, you see your debt being reduced much faster – which motivates you to try harder.
  • Two, by paying biweekly, you eliminate late charges which can lead to higher interest rates and a lower credit score.
  • Three, splitting your payment makes it less painful.
  • And four, by paying more over time, you lower the amount of interest paid.

Track Credit

The system also works with Experian, one of the credit reporting agencies. When you upgrade to the Plus Yearly plan, the system automatically tracks your credit score.

If you’re saving for a house or a new vehicle, knowing this information can help motivate you to clean up any credit issues and pay down debt – even a few points increase in your credit score can help you get a better interest rate.

Change your Attitude about Money

For many people, money is an emotional topic – one that we don’t like talking about – and this is especially true with regard to debt. Once people get into debt, they have a hard time getting out due to feeling shame and embarrassment.

In addition to offering tools for managing your debt, ReadyForZero’s staff (some of whom were in debt themselves) address the emotional issues surrounding debt. Instead of beating you up and telling you how awful you are (as some of the big name financial gurus do), they help you change your attitudes toward money and debt. By addressing these issues in a more positive way, you free yourself to reach your goal: paying off your debt.

What It Doesn’t Do

ReadyForZero doesn’t help you consolidate debt, work with creditors to reduce payments or interest rates, or remove faulty information from credit reports.

In addition, you may not be able to link all of your credit or student loan accounts. When we did a test run of the application, we were not able to link a credit card from a lesser-known bank. When we emailed ReadyForZero support, we received an email back the same day (from a real person!) stating that the company is aware of this issue and is working to resolve it.

We work with people every day in terms of helping them resolve credit issues so that they can refinance their home or purchase a new one. If you’ve got tough credit problems and/or an underwater mortgage – give us a call and let’s talk. We’re here to help you.

Credit Report vs. Credit Score: What’s the Difference?

Credit Report vs. Credit Score: What’s the Difference?

Before you start looking for a home to buy, you need to get your credit in order. In the process, you’re sure to come across the terms “credit report” and “credit score.” While some people use the terms interchangeably, they are, in fact, two different things.

A credit report is a record of your credit history. It contains information about your existing credit (such as credit card accounts, mortgages and loans), including how much you owe and your payment history. It also contains information about any court judgments, tax liens and bankruptcy filings.

Your credit score is a number that is meant to encapsulate the information in your credit report. It reflects the risk a company incurs by extending credit to you. The higher the score, the lower the risk.

Lenders typically use your credit score in combination with your credit report to decide whether or not to grant you credit and what terms and interest rates to offer you. You can find a detailed discussion of credit reports and credit scores in the Federal Reserve’s Consumer’s Guide.

What’s on your credit report?

By law, you can request a free copy of your credit report every 12 months. Consumer Reports warns that some companies may charge for this service, so they suggest requesting a copy from AnnualCreditReport.com. The three big consumer credit bureaus (Equifax, Experian, TransUnion) maintain this site in order to comply with the Fair and Accurate Credit Transactions Act.

Unfortunately, there’s no law stating that credit reporting companies must provide you with your credit score for free. However, you might be able to learn your credit score when applying for a loan. Your lender will learn your credit score as part of the loan application process and may share it with you. Otherwise, you can purchase your credit score from any of the big three credit bureaus.

“Hard pulls” will NOT lower your credit score

One myth that hurts consumers shopping for mortgages is that pulling credit reports hurts your credit score. According to MyFico.com, credit scores aren’t reduced by multiple inquiries within a short period of time.

In fact, a few years ago lawmakers forced the credit bureaus to reformulate their score calculations in order to allow consumers to shop around for various financing and not be penalized for it.

If, while you’re shopping for a mortgage, a lender tells you not to let anyone (other than the lender himself) pull your credit because your score will drop, consider removing this lender from your short list. Obviously, having other lenders pull your report will not hurt your score. By perpetuating this myth, the lender is scaring you into not allowing other lenders to pull your credit – which pretty much means you’ll go with him (or her).

Key takeaway: Shop lenders for the best rates

As a mortgage broker, we advise our customers that five mortgage inquiries within a 30-day period are viewed by the credit bureaus as one single inquiry and adjusted accordingly. (For additional information from “the source,” see this LA Times interview of Frederic Huynh, a Senior Scientist at FICO, on key rules regarding credit scores.)

Naturally, if you want to get your loan approved or get better terms and interest rates, you’ll need a good credit score. For tips on getting a higher credit score, see our blog post, How to Improve Your Credit Score. You can also watch our short video:

If you’re planning on buying a home and have questions about your credit report or credit score, give us a call. We’re always happy to help.

20 Percent Down Payment May Not Be an Indicator of Ability to Pay

20 Percent Down Payment May Not Be an Indicator of Ability to Pay

A recent New York Times article, Down Payment Rules Are at the Heart of the Mortgage Debate, discusses the current debate on whether first time home buyers should put down the standard twenty percent.

One the “yes” side, regulators and policy advisers want to prevent another financial meltdown – as well as help prevent foreclosures. Requiring buyers to put down 20 percent means that people are “invested” in their homes and less likely to walk away.

On the “no” side are lenders and consumer advocates who believe that the standard 20 percent restriction could prevent lower-income buyers from entering the market.

Does putting down the standard 20 percent help buyers – or hinder them? The answer depends on a number of factors, including borrowers’ financial literacy and their debt to income ratio.

Financial literacy lowers probability of foreclosure

NeighborWorks® posted the results of a study that showed pre-purchase counseling and education works. Using information from approximately 75,000 loans that originated between October 2007 and September 2009, Neil Mayer and Associates and Experian analyzed the impact of pre-purchase counseling and education on borrowers.

NeighborWorks clients who received counseling and education were one-third less likely to become 90+ days delinquent over a two year period after receiving their loans than borrowers who did not receive counseling and education.

For people who understand the ins-and-outs of the mortgage process, budgeting money and handling credit, a 20 percent down payment may not be necessary – a point made clear in another study.

As explained in the NY Times article cited above, Professor Quercia of the University of North Carolina found that he had to exclude more than half the borrowers from his study on whether a 20 percent down payment resulted in fewer defaults. Those that were excluded from the study hadn’t put down the 20 percent – but they hadn’t defaulted, either.

People with little debt may not need a high down payment

Debt payments include car loans, student loans, personal loans and credit card loans – plus the total mortgage payment, including principal and interest, PMI, homeowners dues, etc. (To calculate your debt to income ratio, use FHA’s Mortgage Calculator.)

For a single person or couple who is debt-free but just starting out, a 20 percent down payment could be restrictive – and prevent them from getting into a home now while rates and prices are so low.

Call Meridian Home Mortgage to discuss your situation

Whether you’re a first time homebuyer with zero debt and little savings or relatively high debt, we can help you find a loan program that suits your situation.

You may be eligible for an FHA loan, a loan assistance program, or a loan requiring zero financing or 3.5 percent down. And, many programs allow for family gifts and generous seller contributions to help with closing costs.

With the housing industry stabilizing, prices steadily climbing (but still significantly below 2006 prices) and 30-year fixed mortgage interest rates still below four percent, now is a great time to buy your first home.

Call us today ( 877-878-0100 ) to see how you can make any one of these programs work for you.