You have the legal right to see the price of a mortgage before providing any personal information or having your credit report pulled. Some shady loan officers are trying to get people to commit to them before providing a cost estimate — and that is ILLEGAL.
Recently, I heard from two different book readers in two different states about loan officers who tried pulling tricks. I share their stories with you so that you won’t fall prey.
Loan Officer Asks For Money Upfront — Illegal!
When the home buyer asked for a cost estimate (the Good Faith Estimate has been retired), the loan officer pressured her for her credit card information. He refused to take any of her criteria (loan amount desired, etc.) or let her make an application until she paid for an appraisal report with her credit card. “I want a commitment from you first,” he said.
This is illegal, and the home buyer is filing a complaint with the Consumer Finance Protection Bureau against this large national direct lender.
Loan Officer Sidesteps Questions with the Runaround
Another home buyer had a different kind of trouble when she asked for an upfront estimate.
The loan officer said, “How can I give you an estimate when we don’t have a specific house, specific loan amount, and I don’t know which lender I am going to choose?”
The home buyer then asked what the lender fees would be.
“I don’t know, because I don’t know which lender I will broker out to,” she (dishonestly) replied.
This unprofessional individual was recommended by the real estate agent. Here’s a valuable tip: do not choose your mortgage advocate by who the agent is friends with. You make your own choice.
First, the loan officer should give an estimate for the maximum home price the buyer may want. No address is needed at this point.
Second, the loan officer knows the lender fees and should provide the figures when asked.
What You Can Do
If you encounter this type of nonsense, walk away. Don’t reward a dishonest shark with your business. Loan officers are paid on commission, so when you walk away, it makes a big impact. There are plenty of good, ethical mortgage professionals who are state licensed and trustworthy.
You can also file a complaint with the CFPB. I would not advise filing against someone who gives you the runaround, but if a loan officer asks for any type of payment (including collecting your credit card info) before providing you with complete disclosures, that is a violation of federal lending law — and therefore, that person and the company they work for should face consequences.
No More Good Faith Estimate
The GFE has been replaced with a different form: Cost Estimate, Fees Worksheet, Cost Worksheet, whatever they want to call it. Ask for a Cost Estimate and an ethical, honest loan officer will provide you with the information you need on the form their company uses. We don’t care what title they put at the top of the page: the information you need about the loan is there. (Do not ask for the Loan Estimate. That comes later with your disclosure package after you have a purchase contract.)
No one would think of putting money down on a car without first seeing the price tag. The same applies to a mortgage. You have the right to see the terms of the loan before making a commitment.
If you would like my help, I am state licensed (NMLS 1284134) in California and Washington.
FHA has rolled out a new option for home buyers who need help obtaining a down payment. Now, for the first time, a family member can loan you the money. Previously, all funds coming from family had to be a gift with no payback required. Not all families are in a position to give funds, but some could make a loan, so this is good news.
What You Need to Know
The loan must be disclosed right up front on the loan application, but don’t worry about the paperwork. Simply tell your loan officer and he/she will input it properly for you.
The loan is recorded with the County Recorder’s Office, just as any official house loan would be. Your closing agent (escrow company or closing attorney, depending on your state) can guide you.
The down payment on an FHA (Federal Housing Administration) loan is 3.5 percent of the purchase price. On a $200,000 house, that would be $7,000 down payment.
The house or condo must be your primary residence. You cannot use an FHA loan for a vacation/second home nor for a rental property.
You do not need to be a first-time home buyer. Second time buying a home, third time, it doesn’t matter.
Don’t Forget Closing Costs
In addition to the down payment, there are closing costs. Such as, lender fees, credit report, appraisal report, title insurance, escrow/settlement fee, and prepaid costs (property taxes, home owner’s insurance, prepaid interest). You can pay these or the seller can pay the closing costs, if it is designated on your purchase contract. Or, the lender can give you a credit toward closing costs in exchange for a higher interest rate.
Credit Score Required For an FHA Loan
Each lender has its own rules for the credit score required for an FHA loan. Typically, that ranges from 580 to 600 as the minimum. If you can boost your score to at least 620, you will get a better interest rate and lower monthly payment.
A Chapter 7 bankruptcy must be discharged for 24 months. A Chapter 13 bankruptcy must have been paid on time, per the arrangements made by the court.
FHA likes to see on-time payments for the past 12 months. If you’re going to be a home owner, you should be able to demonstrate that you’ve been on-track with your finances for one year. That’s reasonable.
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This home owner said phooey on updates and upgrades. She placed her home for sale in its original condition. You might call it charmingly outdated.
An old ceiling fan. Ugly wallpaper. And what’s with the furniture lined up all around the walls?
The outside, while tidy, doesn’t exactly look professionally landscaped, either.
So what happened? Did the house receive any attention from buyers? Did it go for a decent price?
Four people bid on the home. It sold for $375,000 above asking price at $2,575,000.
Evidently, the home is in a hot location! But still, the point remains: a house doesn’t have to be all decked out with granite counter tops and hardwood floors in order to sell. Neat, clean, and vintage also works.
Do you keep cash in a safe or other hidden place inside your home? If so, this is a big heads-up! You need to get that money into a bank account immediately and then wait for three months before you can use that money for a down payment.
“Everyone takes cash” — right? NO.
A mortgage lender needs to see two months’ bank statements showing the money in your account belonging to you. If there is a large deposit into your account, that deposit needs to be traced with paperwork. That is why you will need that third month for the money to season in your account: so the deposit doesn’t show on your bank statements.
Down payment money must be sourced. If you cannot document it with paper, you cannot use it. A signed letter does not count. Why? Because anybody can say anything in a letter–writing it down doesn’t necessarily make it true. A photograph of money hiding under your mattress doesn’t count, either. Why? Because you could have taken a cash advance on your credit card and then stashed the money under your bed. Or in your home safe. That would be borrowed money from a credit card company, which is not allowed.
You must officially document your down payment money.
If you sold a vehicle, you can use that money for your down payment as long as you provide the Bill of Sale, the receipt showing the cash being deposited into your account, and a bank statement showing the cash in there. But beware! The dollar amount of the Bill of Sale and the deposit slip must match exactly, so you cannot keep out some money for shopping.
If you want to use your tax return for the down payment, you must provide a copy of your tax returns showing the refund owed and then the deposit receipt for the exact same amount and a bank statement showing the money in.
If you want to use gift money from your mother, you must provide your mother’s bank statement showing she owned the gift money as well as have her sign a form gift letter from your mortgage lender. Why? Because your mother cannot take out a cash advance on her card for your down payment. She must show “ability to give” with a bank statement.
You get the idea. The documentation needs to come from a legal source and cannot be something someone wrote up and had a friend notarize the signature on; nor can it be a sneaky side loan.
With more Americans nowadays saving money in a personal safe (or, horrors!, even a plastic garbage bag) this is important information to know. Get your “house money” into the bank and keep it there (preferably in one account) until it is time to get that cashier’s check at closing.
If you know someone who this applies to, please pass on the information, because it is no fun to be blindsided with a rule you never knew about.
Does credit repair work? YES
Is credit repair a scam? NO, not when you do it legally like the certified, licensed, credit repair specialists.
One of my book readers recently sent me this, showing her success.
Previously, her credit report had a charge-off from Verizon that she did not agree with. She challenged it and won! This letter from Experian shows the results and outcome: “Deleted – This item was removed from your credit report. Please review your report for the details.”
She was so happy, because having this negative item removed from her credit will boost her score. I cannot predict how many points her score will go up, because it varies depending on the person’s overall credit report. That said, having a charge-off removed is a major success!
Congratulations, dear book reader, and thank you for giving me permission to post this as an encouragement to others that DIY credit repair works.
All the steps on how she did this are in Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. You can check it out here.
Please share this encouragement with others who either need to restore their credit and/or who want to know how the credit system works. I appreciate it so much, and they will too!
When you get a mortgage, there are closing costs that must be paid. With a refinance, you can roll those costs into the loan; but with a home purchase, the closing costs must be paid at closing and cannot be rolled into the loan. However, the seller can pay the buyer’s closing costs if that is designated in the purchase contract. (The lender can also give you a credit toward closing costs if you choose to take a higher interest rate.)
The Three Types of Closing Costs
Lender Fees. This is what the lender charges for its profit and to pay for required third-party vendors that are chosen by the lender.
- Origination fee, underwriting fee, administration fee, processing fee, document fee
- Credit report, flood cert., tax service
- Appraisal, appraisal review, appraisal management fee
Third Party Fees. These are fees for vendors that you can shop for and choose.
- Title insurance
- Settlement closing agent (escrow agent or attorney)
- Recording fee
Prepaid Costs. These are not fees, but rather costs that are part of buying a home. These will be the same no matter which lender you choose, because they are not related to nor controlled by the lender.
- Property taxes
- Other taxes depending on your location, such as transfer tax, state stamp tax, county tax
Home owner’s insurance, which is your fire/hazard insurance
- Partial mortgage payment if you close in the middle of the month, called prepaid interest
Closing costs vary widely depending on the price of the property and the location. The East and West Coasts are more expensive, and middle America is cheaper for closing costs (as well as property prices).
Your initial cost estimate (this is what used to be called a Good Faith Estimate) will list the expected closing costs as well as the loan term, loan amount, interest rate, and monthly payment.
There are some exceptions to the information above. Most notably is that the FHA Upfront Mortgage Insurance Fee of 1.75% is rolled into the loan unless you ask for an exception.
Any questions about closing costs, please feel free to ask me. Thank you for reading my blog.
The Date of Last Activity (DLA) listed on your credit report is important to understand. This date is updated when one of three things happens on any active account:
- You make a payment,
- You miss a payment, or
- Your balance increases.
The Date of Last Activity used to include the “drop off” date, or the date the item will be removed from the report, but this is no longer the case. The “drop off date” is now a separate item and often not on the report at all.
Who sets the Date of Last Activity?
Creditors and debt collectors are responsible for reporting this information to the bureaus who then update the DLA accordingly.
Is a debt collector messing with your Date of Last Activity?
Some debt collectors sneakily make regular changes to consumers’ accounts, which triggers a balance increase to be sent to the bureaus and changes the DLA. This can hurt your credit score. Some unscrupulous creditors do this to intimidate people in hopes of pressuring them to pay.
What should you do about the Date of Last Activity?
When reviewing your credit report, pay special attention to the Date of Last Activity–especially on delinquent accounts. Make sure that the DLA reflects the actual date that a payment was made, missed, or the balance increased. If it is not, begin the basic dispute process to have the item changed or (better yet) deleted.
The Fair and Accurate Credit Reporting Act (FACTA) protects you from having erroneous or false derogatory information be posted on your credit report.
Does the DLA determine when an item will fall off your credit report?
No. The original delinquency date determines when the item will be deleted from your report. However, the DLA does influence your credit score. (This is crucial to know and a whole topic in itself. Don’t shoot down your score by updating an old derogatory DLA!)
Collection accounts are deleted seven years from the original delinquency date of the original account. Collections accounts are always associated with the original account so they must be deleted at the same time.
For more information on how credit scoring works and how to take control of your own credit, see Repair Your Credit Like the Pros here.
Book reader Paige Bellamy wrote: “This is the best credit repair book I have ever read. This book is filled with tons of useful information.”
Ashton Ammons, Senior Credit Consultant wrote: “Carolyn did a fantastic job writing this book, I’ve been in the credit repair industry for many years and through these chapters she’s provided our team with new insight, strategies and ideas to be able to produce even better results for our clients. I like a lot of the lingo and terminology she uses throughout the book. It’s true we use a lot of the same words and jargon around here at the office. She’s explains the content in very understandable step by step manner and I believe she truly wants to help the reader better understand how credit works. This book is one of the best investments I’ve made in a long time.”
Don’t confuse the home inspection with the inspection done by an appraiser who provides the appraisal report. Here’s the difference, quick and easy:
The Home Inspection
You hire and pay for the home inspection outside of the loan. The inspector goes through the house from roof to crawl space. He or she will point out every flaw, take a photo, and write a detailed report. It’s best to be present at the inspection so you can speak with the appraiser directly and ask questions.
Your Purchase Agreement should have a clause that allows you to cancel the sale without penalty if the inspection does not pass your personal standards.
Every house has its flaws. You need to decide which items are major enough to ask the seller to fix or provide you with a credit to fix yourself. It doesn’t make sense to ask for inconsequential items to be repaired.
You do not share the inspection report with your lender.
The appraisal determines the fair market value of the property. It protects you from paying too much and the lender from lending too much. The report is ordered and owned by the lender, but paid for by the borrower. The borrower receives a copy of the report, per federal lending law.
The lender may not collect money for the appraisal until after you have received the loan disclosures, a packet of information that includes the Loan Estimate. Then the lender will ask for payment of the appraisal by credit card.
The appraisal is paid for upfront, because if the value comes in too low or if you cancel the loan for any reason, the appraiser still must be paid. The lender does not cover that cost for you if you cancel the loan.
If the value comes in lower than the purchase price, you have three choices:
- You can have your Realtor renegotiate the price.
- You can pay the difference between the original sales price and the appraised value. (This will increase your cash to close.)
- You can cancel the sale.
You can also dispute the appraised value by providing different comparable properties with an explanation. This rarely works, but one time I saw the value raised in response to a customer dispute.
Neither you nor your loan officer chooses the appraiser. That is done by a neutral party who has no vested interest in the closing of the transaction. The idea behind this regulation is that neither the buyer nor the loan officer should have the ability to influence the value. That is why you cannot order your own appraisal report. No lender will give a report ordered by you one second of their time.
For more information about bogus appraised values, see my post here.
For 7 facts you should know about home appraisals, see my post here.
I welcome your comments and questions. (See Leave a Comment at the top of the post, under the title.)
I received this excellent information from Credit Repair Resources, and I know many of you will be interested in this news:
So another bombshell hit the credit reporting and lending world this week. This time it is potentially big news for millions of Americans and thousands of lenders. In the ongoing effort to provide accurate credit reporting to consumers, the three major credit reporting agencies, Equifax, Experian and TransUnion have announced that in July, 2017 many tax liens and judgments will be removed from consumer credit files.
I thought I would add insight into why this move was made by the CRA’s. The key reason is, wait for it…. identifiers.
You see as part of the ongoing overhaul of the credit reporting system, entities that report information to our credit report, otherwise know as furnishers must provide specific information that accurately ties the account to the consumers credit file.
Public records like tax liens and judgments often do not contain the required identifiers that permit those accounts to be reported. After July of this year, any lien or judgment that does not contain the proper information will be purged from consumer files.
Now in the near term this is excellent news, but it is not all puppy dogs and ice cream. There is always a caveat. We must consider that government agencies and lien holders are not going to take lightly to this. I hate to make assumptions, but I will make the assumption that there will be pressure applied to court houses and Lexis Nexis to improve their record keeping.
It is also important to know that this will not affect all Americans with these items. If the lien or judgment does contain the proper identifiers, it can remain on the consumer’s credit file.
It will be interesting to see how this impacts the mortgage world, but at first glance, Summer 2017 is looking to a very busy one for the mortgage industry!
~ Written by Chad Kusner, President, Credit Repair Resources (Posted here with permission.)
Please help share this information via social media, because a lot of good folks need this intel.
Repair Your Credit Like the Pros,
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Can you afford a mortgage payment but are low on cash? Would you like to buy a house now before prices and rates go up even more?
Here are four ways to get into your own home with little or no money down.
1) USDA zero down loan. The property cannot be in a highly populated city, but it doesn’t have to be way out in the country either. To check out property eligibility, see here.
2) Use a state bond for the down payment. All states have various programs that either provide the down payment or lend you the down payment with zero interest and no payment, to be paid back at the end of the loan. To check out options for your state, contact your local mortgage broker or full service mortgage lender (not big bank).
3) Use gift money for the down payment. A conventional loan has 3% down, FHA loan 3.5% down. Both allow gift money from family for the down payment.
4) VA loan is zero down for U.S. Veterans. This is a nice thank you for serving our country. Most lenders offer the VA loan.
Getting Closing Costs Paid For, Too
All loans have closing costs, which include the lender fees, cost of appraisal, title insurance, and attorney/settlement/escrow fee. In addition, there are property taxes and home owner’s insurance that must be paid for upfront. If you close in the middle of the month, there is a partial mortgage payment called prepaid interest.
The closing costs can be paid for by the seller if you have that written into your Purchase Agreement. (Ask your Realtor to negotiate this for you.) You can also receive a Lender credit toward closing costs. To receive a Lender credit, you take a higher interest rate. (There is no free money in mortgage.)
If you’re tired of paying rent, I encourage you to apply for a mortgage now, because interest rates are and will continue to rise, which means your monthly payment goes up. Don’t assume you cannot qualify for a home loan. Many people who feared that might be the case are now happily opening the door to their own home!
Please help pass on this encouraging news to others via social media. Thank you!