Today, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, signaled that an interest rate increase in March is likely. The Feds expect the economy to continue to improve; and accordingly, for interest rates to continue upward on a gradual incline.
30-year fixed rates:
Last summer – 3.75%
Now – 4.375% to 4.5%.
How long will it take to get to 5%?
I think that is the appropriate question: how long until rates are at 5%?
Not “if” but “when”?
If you have been procrastinating in buying a home, waiting for flowers or sunshine, that is a mistake. Not only will rates be higher, but sellers price their homes higher when their yards are gorgeous. Statistically, bidding wars are at their fiercest in March when both sellers and buyers come out of hibernation. Be smart and beat the rush if you can.
Have you been procrastinating with getting your credit repaired? Maybe you don’t have the money to hire a professional service. STOP procrastinating and get busy now. All the instructions are available for you in my newly released expanded edition of Repair Your Credit Like the Pros.
Does credit repair work? Yes, it does!
TJ wrote me to say, “I read your book…I increased my score by 70 points!”
The time is now to reach your dream of home ownership. The chart on the left is from a professional service (EZ Credit). The book on the right teaches you how to do it yourself to get the same results.
Bank, credit union, broker, or direct lender? What is the difference, and where is the best place to get a home loan? Having worked for a national bank, a broker, direct lender, and having interviewed with a credit union, I can provide some insider information. Here are some facts most consumers don’t know.
A mortgage broker shops wholesale lenders to find the best option for your loan. Think of a travel agent shopping airlines for you. Some people assume that using a broker costs more–a middleman fee–but that is not true. Because brokers go to wholesale lenders, they can often find you cheaper financing than if you go directly to your retail bank.
Brokers are required by federal law to obtain a loan officer license from the National Mortgage Licensing System. This means they must attend classes in lending law and requirements, then pass a rigorous test that about 30 percent of applicants fail. They must also be fingerprinted and pass a background investigation and credit investigation.
A direct lender uses their own money to lend rather than broker out to wholesale. Using in-house underwriting is sometimes an advantage for closing faster and for getting a more streamlined approval.
Loan officers working for a direct lender must obtain their NMLS license, passing all tests and background checks, the same as for a broker.
A bank also uses their own money, but typically, they do not close faster or easier. In fact, the large banks are usually slower and have tougher underwriting requirements to pass. It is not unusual to be asked for more documentation in the 11th hour, requiring getting an extension on the loan.
Loan officers at a bank do not have to get a NMLS license. They do not have to pass an NMLS test. They do not get fingerprinted or have a background investigation. I personally know of a case where a woman who was under investigation for loan fraud waltzed into a big bank and was promptly hired.
Everything above that applies to a bank also applies to a credit union. Some credit unions have excellent pricing and service, but others have horrific service. One popular West Coast credit union that I interviewed with has a bad business model. They have application takers in their branches, then those applications get passed on to a regional loan officer who handles dozens of branches. So the person you met with in the branch is not your actual loan officer, nor does that person have any training in mortgage loans. I’m sorry, but that is not my standard of service when it comes to something as monumental as buying a house.
FULL SERVICE MORTGAGE LENDER
I’ve saved the best for last. A full service mortgage lender has their own money to lend (like a direct lender) but can also broker out when needed. This gives the most options and the most flexibility.
Loan officers must meet all NMLS licensing requirements and pass all investigations and checks.
Personally, I work for a full service mortgage lender, and I like having more choices for my clients. I am state licensed in WA and CA, so I have taken state courses for both states, and have passed state tests as well as the big national test. I was fingerprinted twice and have passed all background tests, including an annual credit investigation.
I’ve been warning people not to buy their credit scores from the credit bureaus, because those scores are not their real scores; that is, they are not the scores used by mortgage lenders. Now the Consumer Finance Protection Bureau (CFPB) has levied a big fine against Equifax and TransUnion for deceiving consumers by selling those scores.
People purchased them in good faith, wanting to know if they qualified to buy a home. But the scores they got were calculated with a different, more generous algorithm, often 20 to 80 points higher than their actual mortgage scores.
Their little scam will cost those two credit bureaus more than $17,600,000. Of that, approximately $13.9 million is to go as restitution to affected consumers. The companies are required to send notification letters to the folks who were taken advantage of. I hope people don’t mistake the letters for junk mail and toss them in the recycle bin.
Going forward, Equifax and TransUnion must make it clear that the scores are good for entertainment purposes only–just kidding. Those scores are good for qualifying for a little plastic credit card, which is not that hard to do. Personally, I would not pay money for that when there are sites that offer free scores for people who want to get an “approximate score.” (Beware that the free scores are not offered as a charity. Those sites will then try their darndest to get you to buy a service or product from them, and they will send you solicitation emails until you get so sick of them that you unsubscribe.)
The third major credit bureau, Experian, was not a part of this action.
Source and verification here. As always, thank you for reading and subscribing to my blog.
A brand new fraud scheme has hit home buyers, and it’s taking victims from all across America. Here’s what happens.
The borrower receives an email from their title company with instructions on how to wire their funds to close. The home buyers — or home owners refinancing — have been expecting this information, so when it comes in, they readily respond and wire their down payment and cash to close. BAM!
Unbeknownst to them, they have just sent their money to scamsters sitting in their evil darkness in God-knows-what-country. So far, these criminals have not been caught. And so far, these victims have not received their money back. How now are they going to be able to close on their home?
ALERT: Do not wire any money until you first pick up the phone and verify with your closing agent and loan officer that the instructions you have received are true and correct. Do not take chances — double check!
Please help get this information out via social media, because this is happening all across the nation. Thank you and be safe.
The way a self-employed person counts his (or her) income is not the same as the way a lender calculates it. It’s not unusual for a self-employed individual to say he makes a six-figure income and then find out that only $60,000 will count. This is a blow that knocks him out of qualifying for the house he desires. But I have good news! There is now another option. I’ll explain.
Smart CPAs are hired to find all legal tax deductions. This is great when facing the IRS, but when all those deductions reduce the adjusted gross income severely, it can derail your goal to buy a home. Usually, the self-employed person finds this to be unfair and nonsensical. I can’t say I blame them, but the government sponsored agencies, Fannie Mae and Freddie Mac, have their regulations set in stone.
Another Source of Money Comes to the Rescue
Now there are lenders who will accept cash flow as an alternate way of looking at self-employed income. If the money comes into your bank account, then it counts. Expenditures are not subtracted.
Simply add up all deposits for 24 months, then take the average. That is your income on the “bank statement income program.”
Where to Get This Loan
The way to get this program for self-employed buyers is through a mortgage broker or full service mortgage lender. You will not find it at a bank or credit union. I work for a full service mortgage lender, Envoy Mortgage. I am licensed in California and Washington states. However, there are branches of Envoy in most other states, if you live elsewhere.
You want to ask the loan officer, “Do you have the bank statement program for self-employed people?”
If you have any questions, please let me know, and I’ll do my best to answer.
A credit inquiry is when a creditor (such as Visa, a bank, a landlord) pulls your credit report. Lately, people have been asking me how much this hurts their credit score and why. Here are the facts.
Too Many Hard Inquiries Hurt Your Score
A hard inquiry is when you apply for credit. If you applied for three credit cards during the holidays in order to save on your purchase, your credit score has been hit. Why? Because the credit bureaus do not know how you are going to use this new credit, whether or not you will max out your cards, or if you will pay on time. Also, when a person suddenly applies for a lot of new credit, it is a concern as to whether or not they will be able to afford the new, upcoming bills. Therefore, your score is temporarily lowered for six months until you have established your record with these new cards.
The Exception: When Hard Inquiries Will Not Hurt Your Score
On the contrary, you can apply for a mortgage or car loan with three companies in a short time span (less than 45 days) without it hurting your score. Why? Because the credit bureaus do not think you are getting ready to buy three new houses or cars. They assume you are shopping for the best deal.
That said, if you have six or more mortgage inquiries, it is going to raise a red flag to the underwriter approving your loan. Why? Because, as I explained in Mortgage Rip-Offs and Money Savers, shopping three lenders is sufficient. If you apply for a mortgage with many lenders, it looks like everyone is turning you down. That makes other lenders ask why no one wants to lend to you. You will then need to write a letter of explanation for your loan file.
Soft Inquiries Do Not Affect Your Credit Score
A soft credit inquiry is any of the following:
- You request your own credit report.
- An employer pulls your credit report.
- Your current credit card company looks at your credit report to check how you are managing your credit. (Yes, they have the legal right to do this.)
- Creditors troll your credit report to see if you are a good candidate to send a solicitation to. (To stop this annoying practice, go to http://www.optoutprescreen.com and get off creditors’ mailing lists.)
Don’t concern yourself with soft credit inquiries. They do not hurt your score in any way.
Unauthorized Hard Credit Inquiries
It is illegal for any creditor or lender to pull your credit report without your knowledge and consent. As a licensed, ethical loan officer, I ask every person who wants to get pre-approved for financing to give me their permission to order their credit report before I do so. And then, I make a record of this permission, whether it was by email, in writing on a form, or verbally, with the date. Other ethical loan officers do the same.
If a mortgage lender, bank, credit union, credit card company, or other loan company pulled a hard inquiry on your credit report without your permission, you have the legal right to have that inquiry removed from your report so that it does not harm your score.
First, contact the creditor to make sure you are correct about the hard inquiry. Then if they cannot provide you with your consent verification, ask them to send you and the credit bureaus a signed letter on company letterhead that requests the inquiry to be removed.
How Much Do Inquiries Lower Your Score?
The credit bureaus claim that an inquiry impacts your score only by about five points. However, in real life, it’s a different story.
One credit repair specialist tells me he has seen credit scores lowered by 15 points after several hard inquiries (such as multiple credit card inquiries). Another credit repair specialist said he saw a client’s credit score increase by 24 points after unauthorized hard inquiries were removed.
The higher your credit score, the more inquiries impact your score, because there are not other factors such as late payments and collections docking your score.
If you have a low credit score due to negative credit, then inquiries are the least of your worries. Work on establishing on-time payments and lowering your credit card balances to below 30% of the limit first, because those are your priorities.
For more information about how credit attorneys and certified credit repair specialists legally delete bad credit and restore your good name, please see here.
Thank you for reading my blog. I do my best to inform people of the facts about achieving “A” credit, because the American finance system is dependent on credit. Unless you are wealthy and will pay cash for everything — including a home — having a good credit score is essential.
I want to make everyone aware that mortgage interest rates have been and are continuing to rise rapidly. The rate you were quoted last week no longer applies. In fact, the rate you were quoted yesterday no longer applies. Your interest rate is not secure until it is locked.
To lock your rate, ask your loan officer to do so. For a matter this important, make the phone call. Do not rely on an email which can be overlooked or missed.
A rate lock is tied to a specific property address, loan amount, and other terms. There is a “Lock and Shop” program where you can lock in your rate before you have an address; however, that is riskier to the lender, so the interest rate is higher, which pretty much defeats the goal in most cases.
If you want a lower monthly mortgage payment, I strongly suggest you resist the temptation to wait until after the New Year to find a house. Get with your Realtor now and make an offer. Then the minute you have a mutually signed Purchase Agreement, send a copy to your loan officer so that you can lock in your interest rate.
If you know someone who is thinking of buying a home in the near future, please pass on this vital information, because procrastination will result in a higher payment.
Thank you for reading my blog posts and for helping pass on intelligence through social media.
I was working next to a newly hired loan officer. He was brand new in the business. A potential client asked him, “How much experience do you have?” Not wanting to say “two weeks,” he replied, “Five years.” Later, I asked him how he had five years experience when he was brand new and had not yet done his first loan.
“I was counting my experience playing baseball,” he said. Then he laughed.
The take-away is that it is important how you phrase your questions when interviewing loan officers. As a professional who has worked in both retail and wholesale lending since 1998, and as the author of Mortgage Rip-Offs and Money Savers, here are my suggestions.
Questions to Ask Your Loan Officer
- Tell me about your experience in the mortgage business. (Leave it open-ended so you can get the most insight into their experience.)
- How long does it take to close a purchase loan (substitute that with refinance, if applicable) with your company? (It takes longer to close a refinance, so be specific.)
- Everyone says they have “great service.” What do you do that is better than other lenders? (If they are truly great, they should give you a very specific answer, not simply dance around the subject with meaningless rhetoric.)
- What will you do if something unexpected happens in the middle of the process that threatens to sabotage my loan? (This is an excellent question to ask, because getting blindsided is no fun, and it happens more often than anyone likes to admit. It’s also a question I’ve never seen on anyone else’s list of questions, probably because the writer is not in the business himself/herself, or because they don’t want anyone asking that question.)
- Will you please give me an estimate worksheet that shows the terms of the loan? (This is an entire chapter in my mortgage books, so I won’t repeat the how and why here. Suffice it to say all the writers who tell you to call and ask what the interest rate is, are wrong. That approach will lead you to the biggest liar.)
If there is another important question you’d like to see on this list, please post it in a comment by clicking on comment at the top of this post.
I would like to say thank you to all of you who share my posts on Facebook and Twitter, because the more insight we can pass on, the better off we all are.
January 2014, financial experts and mortgage professionals said interest rates would rise by the end of the year. They remained fairly flat.
January 2015, same thing with rates remaining fairly flat.
January 2016, same thing and rates remained fairly flat until this month. At the beginning of November, interest rates started climbing, and they haven’t stopped. Day by day, we see small increases that add up over a week’s time.
One financial predictor has forecast 30-year fixed rates at 4.5% by the end of December.
The Federal Reserve Board has said they will likely raise rates in December. And remember, the market is anticipatory. So if higher rates are coming, lenders react now by raising rates so they aren’t caught short-handed.
If you have been thinking about refinancing — possibly into a shorter term or getting cash out — do not delay another day. Get your application in and get your interest rate locked.
If you want to be a home owner but are waiting until after the holidays, that’s a bad idea. You find less competition among home buyers and better rates now than in January. Get your home now, lock in your rate now, and set the closing for after the holidays. You can wait to move, but you can’t wait to get your financing in place if you want the best deal and lowest monthly payment.
If you are in California or Washington, I am happy to help you as I am licensed in those two states. If you live elsewhere, I suggest that you contact a full-service mortgage lender. Forget the Big Banks who have a terrible reputation on so many levels. A full-service mortgage lender has both their own money to lend and can shop wholesale lenders as needed.
My next post will be questions to ask your loan officer. I wanted to get this warning out about interest rates as soon as possible. No more procrastinating! Consider this is your last call before rates go even higher. Feel free to pass this on via social media.
The best time to get a map is before you walk into the forest. Likewise, the best time to get your mortgage map is before you go shopping for a house. If you work the system backwards, you are setting yourself up for possible disaster.
Here is a simple checklist for home buyers:
Notice that you take care of the financing first, then the house shopping second.
1. Choose a lender by asking for a cost estimate worksheet.
This is your very first step. Not, go house hunting. Not, get pre-approved. And certainly not, make an offer! Why? Because, you don’t want to shop for houses that you are not qualified to buy, so you take care of your financing first. And, you don’t want multiple lenders pulling your credit report, so you choose your lender first. The way to choose a lender is to review the estimate worksheet and speak with the loan officer to ascertain how they answer your questions. (What to ask a loan officer is a topic for my next blog post.)
2. Get pre-approved for financing.
Now that you have your trusted loan officer, you are ready to have your credit report checked, provide your financial documents, and receive your official pre-approval letter.
3. Choose a Realtor.
I recommend working with a certified Realtor rather than a real estate agent, because a certified Realtor has gone through extra training and is held to a higher standard of ethics and work practices.
4. Go house hunting and make your offer.
Your Realtor will guide you through the offer and negotiations. Your loan officer will guide you through the financing.
Thank you for stopping by my blog. Feel free to share this simple list via social media and with others who are thinking of buying a home. You would not believe the horror stories I’ve heard from people who have run headfirst into disaster by signing purchase contracts before they had their financing approved. I hope to save more people from that situation!