Texas Credit Repair

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Brad CullipherMortgage Banker American Capital Home Loans Phone: 512-852-8883 Fax: 512-590-7119 License: NMLS ID 257458 brad@amcaphomeloan.com www.amcaphomeloan.com

Credit Scoring Part I: Good Credit Translates into Lower Rates for the Consumer In the 1960s, Fair Isaac Corporation started working on a system lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a "man of his word," so to speak. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born. This evolved to become the standard for lenders by the 1980s. Credit scoring has an enormous impact on a borrower's ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, or whether they even qualify at all. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing. What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 350 and a high of 850. The higher the client's score is, the less likely they are to default on their loan. Only a rare one out of approximately 1,300 people in the United States have a credit score above 800. These are the slam-dunk clients that walk away with the best interest rates. On the other hand, one out of eight prospective home buyers are faced with the possibility that they may not qualify for the loan they want because they have a score between 500 and 600. Stay tuned for Credit Scoring, Part II: The Five Factors of Credit Scoring

The Short Sale

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process. What is a Short Sale? A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount. However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department. Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one. A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation. Key Considerations to Keep in Mind It's important to note that the difference between what is owed on a mortgage and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges don't simply disappear in a short sale. The difference is called a deficiency, and the lender determines if they will be forgiving this deficiency, continuing with a payment plan on some portion of the loss, or pursuing the Seller for the full deficiency. In the past, if this deficiency was forgiven it was considered taxable income to the borrower. However, thanks to the Mortgage Forgiveness Act of 2007, the tax burden for qualifying canceled mortgage debt (as high as 35%) for primary residences only has been temporarily waived. The federal timeline has been extended to 2012 although states are not required to follow it for state income. So while deficiencies may not be taxable currently, they could be come taxable in the future and the seller in a short sale could still be liable for the deficiency balance. If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Call me. Let's discuss how we can market short sales and other foreclosure alternatives to potential buyers

Higher Fees Coming From Fannie and Freddie!

Brad Cullipher
Mortgage Banker
American Capital Home Loans
Phone: 512-852-8883
Fax: 512-590-7119
License: NMLS ID 257458
brad@amcaphomeloan.com
www.amcaphomeloan.com


Higher Fees Coming From Fannie and Freddie!
What Will This Mean to You?

Do you have less than 25% down to put on a home?

Do you need a loan-term longer than fifteen years?

Is your credit score less than exceptional?

If you answered yes to these questions, you could soon be paying more to get a mortgage.

Fannie Mae and Freddie Mac are raising risk fees that are charged to lenders for the first time since 2009, and these increases will affect most loans sent to Freddie Mac (beginning March 1) and Fannie Mae (beginning April 1).

Here's an example: Say you are purchasing a $250,000 home, putting 20% down, and your credit score is 720. Your risk fee will now be $1,000 (versus $500 before). And if your credit score is 680, the fee will now be $3,500 (versus $3,000 before).

If you want to find out what these fees could mean to your situation, give me a call today. Home loan rates are still at historically low levels and if you're looking to purchase or refinance a home, now is the perfect time to act...before it will cost you even more to do so.

Sincerely,


Brad Cullipher
American Capital Home Loans

brad@amcaphomeloan.com

The Art of Database Management Part I: Working Smarter

The relationship you develop with your customers, combined with the personal information you are constantly collecting, can be a goldmine for future business. The fact is most business professionals spend a significant amount of money marketing to people they don't know in an effort to procure new business.

Wouldn't it make more sense to go deeper with your existing clients – to really understand their needs – and spend your marketing dollars on people you already have a relationship with?

In Bill Gates' book, Business at the Speed of Thought,* he states:

"How you gather, manage and use information to serve the needs of your customer will determine whether you win or lose in your business."

This is a terrific definition of database management. Database management is about gathering information about your customers so you have an understanding of their relevant needs. From there, you can proactively structure a plan to give them exactly what they want.

Have you ever provided excellent service to clients only to have them turn around and use the services of one of your competitors without even giving you the opportunity to make a bid for their business? When this happens, it happens for a reason. The fact is, your client had a need and you weren't there to fulfill it for them, probably because you didn't even know they had a need.

We now have the ability to run reports and analyze the information you have about your customers. You can then use that information to put yourself a step ahead of the competition. By proactively serving your clients' needs and interests, you will no doubt become more successful.

Look for more Business Boosters about efficient methods I use to manage my business and provide stellar customer service!

* © 1999 Warner Books. Author: Bill Gates with Collins Hemingway, Contributor.

Interest Rates When is the Best Time to Lock?

When it comes to mortgage loans and interest rates, it's never a good idea to gamble. That's why I typically advise my clients to lock in an interest rate at the earliest opportunity. This is just one step of the standardized system we have put in place to ensure the best possible loan experience for each borrower that we work with. A mortgage loan cannot be closed without a locked-in rate, and there are three main elements to take into consideration: Interest Rate Points or fees Length of the lock Locking in a rate does not obligate the borrower to commit to the loan until the loan is actually closed. The lock is merely a security measure designed to eliminate the risk of market volatility throughout the duration of the purchase or refinance transaction. As long as the loan is approved and funded before the end of the lock period, the borrower will receive the interest rate quoted.

When a lender permits an extended lock-in period, the borrower will likely face a higher interest rate or additional fees that could be quoted as points. In other words, the borrower pays for the lender to take on the extended risk of being exposed to potential changes in the market.

For example, let's say a 30-day rate lock commitment costs the borrower one-half point, while a 60-day rate lock commitment costs one full point. If the borrower in this scenario needed the extended lock period, but did not want to pay points, then an alternative would be to accept a slightly higher interest rate. In this case, a 60-day lock would typically have a higher interest rate than a 30-day lock.

Our standard procedure is to lock in a rate as quickly as possible. My team and I want our clients to know that while interest rates fluctuate daily, most lenders do not want to lose any business because of it. If a significant rally causes interest rates to drop 0.25% or more, we know that we can most likely renegotiate the rate. In many cases, lenders prefer this option over losing the loan to another lender. On the other hand, if we'd allowed our clients to sit on the fence and not lock in their rate, we would have exposed them to market volatility without a safety net. Then, if rates were to increase, the borrower might no longer qualify for the loan they want - a situation that we want to avoid at all costs.

By knowing our clients' needs and working intimately with them to make the right decisions early on, my team and I are proud to say that we have helped them to achieve their home ownership dreams.

If you'd like to learn more about the loan programs we have available, please call me!

Credit Scores: Why Should I Care?

It's not just banks and lenders that rely on credit scores to help make important credit decisions. Landlords, employers, insurance companies, and even cell phone and other utility companies all reportedly utilize credit scores to help determine their business and credit relationships with consumers. This means that your credit is the most important component of your entire financial portfolio. Because of this, monitoring and managing your FICO score is vital, especially if you're looking to buy or refinance a home anytime in the near future.

The FICO scoring system was created in the 1950s by Fair Isaac Corporation and has been the standard for lenders since the 1980s. FICO credit scores typically range between a low score of 300 and a high score of 850. Under the FICO system, securing credit becomes less expensive for borrowers with higher scores (those who represent the least risk) and more expensive for borrowers with lower scores (those who represent the most risk). In fact, when it comes to a mortgage, a lower credit score could easily cost a consumer hundreds or even thousands of dollars more in interest every month and throughout the life of the loan, compared to the same loan with a higher score.

FICO Scores	APR	Monthly Payment	Total Interest Paid
720-850	5.038%	$1,617	$282,278
700-719	5.163%	$1,640	$290,574
675-699	5.700%	$1,741	$326,832
620-674	6.850%	$1.966	$407,680
Below 620	N/A (1)

Source: Myfico.com (30 year fixed-rate mortgage on $300,000) as of March 11, 2009
(1) People with these scores aren't usually accepted for this type of loan.

The above chart from MyFico.com clearly reveals the relationship between higher FICO scores and lower interest rates and monthly mortgage payments. Of course, interest rates are determined by many factors but the bottom line is that individuals with low credit scores will pay nearly three times more in interest than those with strong credit scores.

Now You Will Also Be Subject To Loan Level Price Adjustment Fees (LLPA’s) when applying for a conventional mortgage.

In addition to higher interest rates, having less than a 720 in today's credit environment can also cost you up to 3% in points or an increase in your interest rate! Here’s the chart based on an 80% LTV:

FICO Score	LLPA You Will Pay
Below 640	3.000%
640-659	2.750%
660-679	2.250%
680-699	1.000%
700-719	0.500%

LLPAs are mandatory surcharges based strictly on credit scores. They are additional fees paid to Fannie Mae or Freddie Mac, not your mortgage professional. Analysts suggest that imposing these "penalties" is a blatant effort to recoup - and to help lessen further losses - on foreclosures. The surcharge could mean thousands of dollars for borrowers who do not monitor and maintain a good credit rating.

For people experiencing the worst-case scenario, carrying a middle credit score of less than 620 could cost you an extra $9,000 upfront on a $300,000 loan amount.

If you're thinking about buying, selling, or refinancing a home, you have to be credit ready. Give us a call today for a free credit consultation. We'll pull your credit and see where you stand. Remember, effective credit repair, if necessary, could take up to 3-6 months, so act now and be credit ready in no time.

Stay tuned for more great credit tips!

Avoid Changes to Your Financial Profile During the Loan Process

Once your loan package has been sent to the lender, there are a number of things you should avoid doing that will change your financial picture. Remember, the lender is looking for stability and consistency. If you want the best interest rate, keep that in mind. Here are a few things to consider:

The lender is looking to see what your source of down payment is.

Your lender will most likely ask you to provide proof of your liquid assets. This includes bank statements for checking and savings accounts, verification of investments, and any other liquid assets. Some of the things they ask for may seem trivial, but keep in mind, if you are planning a move to a new home, it's important to have all documentation readily available. If the lender asks for cancelled checks or deposit receipts to meet certain conditions, you want to be able to find these things quickly to avoid delaying the closing of your loan. Make sure your paper trail is easy to document, and don't move money from one account to another.

Major purchases tip the scales against your favor.

Avoid making any major purchases. You might be thinking about purchasing new appliances for the new home. This is not the time to do it. Avoid making any major purchases on jewelry, appliances, furniture, vacations, or anything with a significant price tag.

Buying or leasing a car can make a negative impact on the way the lender views your financial status. This is a big ticket item that dramatically affects your debt-to-income ratio. You may feel you have room in your budget to purchase a new car, and think this is a worthy investment if you are looking for a home that will mean a longer commute for you on a daily basis. But by tacking a car payment onto your existing debt, you reduce the amount that you will qualify for in a home loan. A $400 a month car payment can reduce your approved loan limit by as much as $50,000. Think about doing this after your loan is approved if you really need it.

If you have to change jobs, you may be asked to document why this change occurred.

If you are changing jobs to increase your income, that's a no-brainer for the lender. If you have an erratic work history to start with, another job change may make it look worse for you.

If you are an hourly wage employee, most likely a job change will have no effect on your ability to qualify for a loan. If you have a track record of a consistent amount of overtime or consistent bonuses over the last two years, the lender views this favorably. If you change jobs, there is no way of knowing if the new employer will pay overtime. Many do not! If you work on a salary + commission or straight commission basis, it has a dramatic effect on your stability. If you are considering starting your own business, again, this is something to consider after your loan is funded.