Mortgage FAQs

How Do Credit Scores Affect the Loan Type That You Qualify For

The higher your credit score, the more loan programs you will qualify for. If your credit scores are lower that doesn’t mean that you may not qualify for any loan programs. The lower credit score programs are typically more of the government backed programs like FHA, VA and USDA. With our wholesale lenders the minimum credit score required for FHA is a 580, VA is 560 and USDA is 600. Credit scores higher than these listed do not ensure that you will obtain a loan approval, but that we are able to continue working toward a loan approval for you. Most of our competition has much higher minimum credit score requirements. All of the government backed programs are great loan programs, but the way that some of these loan programs handle mortgage insurance is different than that of Conventional loans. Conventional loans require a 620+ credit score. So not being able to do a conventional loan sometimes makes your payment options slightly higher due to the mortgage insurance, where on Conventional loans there are additional mortgage insurance options that may offer lower monthly payment opportunities for you.

How to Improve Your Credit Scores

The credit reporting agencies Equifax, TransUnion and Experian do not release exactly what goes into their credit scoring criteria so we do not know everything. We do know that having a mix of credit helps. This means having both Installment Loans (like a car loan) and Revolving Loans (like a credit card) helps. You will have a higher credit score by having both types of loans reporting on your credit. The longer you have had a loan on your credit the higher the score will be, meaning someone with a 5 year history on a credit card would receive a higher score than someone who just opened one. We have seen that it typically takes about 6 months of having a newly established account with a good payment history before you will see an increase in your scores. Having a low balance on revolving debt (not maxed out) helps increase your scores, so if you have credit cards than try to keep the balance less than 30% of the credit limit. Keeping accounts open helps, the old rule seemed to be to close out anything that you are not using, but we have seen that closing out an account (especially one you have had for a very long time) will hurt your credit scores. Using your credit helps increase scores, meaning that you must have activity on your credit and use your credit (use it gently, but use it). We have seen that you need to use your revolving lines of credit once every six months for that account to figure into the score calculation. Next is how you pay your credit, obviously paying bills on time is much better than allowing your payment to go 30 or more days past due. If you have a current past due amount on any credit line then your scores are being severely decreased. Also avoiding any collections will improve your credit scores. Even Medical collections hurt as the credit agencies only see those as collections, not as medical collections like underwriters do. Finally, minimize the number of credit inquiries. You are allowed to shop around, but having numerous credit inquiries will bring down your credit scores. This is not an exact science and this is suggested as a guide from what we have seen and been told that helps improve credit scores.

What Types of Things Impact Your Credit Scores

Certain behaviors impact your credit scores. Having balance equal to the credit limit on a credit card impacts your scores negatively. Having too many inquiries on your credit report impacts your score negatively. Having late payments on credit (especially something currently 30 days late) impacts your scores. Not having a mix of credit meaning that you need both installment loans (like a car payment) and revolving credit (like a credit card). Not having established credit (only having 1 tradeline with only 1 or 2 months of review). Collection accounts impact your scores even if they are medical collections. Not using your credit (at least once every six months) impacts your scores. Closing good credit accounts impacts your credit (as soon as it is closed all of the good history that helps credit scores goes away). Using finance companies rather than typical banks (apparently the bureaus think that using a finance company is typical of a more risky applicant) so try using a local bank for smaller financed items like furniture or personal loan rather than using a finance company. Having public records (like a bankruptcy or tax liens or judgments) impacts credit. How long it has been since your last delinquency impacts your credit so make sure if you miss a payment or get a collection that you allow some time to pass before checking your credit again.

Closing Costs

“Closing Costs” are also known as “Settlement Costs,” these costs are split into two categories. Nonrecurring costs and Prepaid costs.

Nonrecurring costs are a one-time fee that is charged during the process of buying a home or refinancing. Some of these fees include:

  • Realtors fees
  • Originations fees
  • Discount points
  • Title searches
  • Title insurance
  • Surveys
  • Lawyer’s fees
  • Appraisal fees
  • Credit report fees

Recurring costs that occur over the life of the loan are prepaid at closing the include property taxes and homeowner’s insurance.

For more information please call Raleigh’s Local Loan Experts at 919-866-0212 to answer any questions you may have!

Fixed Rate Mortgages

With a fixed rate mortgage the interest rate does not change for the term of the loan. The principal and interest portion of the monthly mortgage payment remains constant for the life of the loan.

Typically, the shorter the loan period, the more attractive the interest rate will be i.e. a fifteen year fixed rate mortgage will carry a more favorable interest rate than a thirty year fixed rate mortgage.
Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a larger percentage of the monthly principal and interest payment is applied towards interest. As the mortgage is paid down, an increasingly larger portion of the monthly principal and interest payment is applied toward the principal.

A 30 year fixed rate mortgage is the most popular loan term.

Benefits:
  • Lower monthly payments than a 15 year fixed rate mortgage
  • Interest rate does not go up if interest rates go up
  • Payment does not go up, it stays the same for 30 years
Drawbacks:
  • Higher interest rate than a 15 year fixed rate mortgage
  • Interest rate stays the same even if interest rates go down

A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.

Benefits:
  • Lower interest rate
  • Build equity faster
  • Interest rate does not go up if interest rates go up
Drawbacks:
  • Higher monthly payment
  • Interest rate stays the same even if interest rates go down

The knowledgeable mortgage professionals at Raleigh Mortgage Group, Inc. will analyze your current situation and to make sure you get the very best deal. Call 919-866-0212 or Apply online today.

Mortgage Insurance vs. Private Mortgage Insurance

Mortgage Insurance is required when your loan exceeds 80% of the appraised value or sales price. Mortgage insurance (MI) is also referred to Private Mortgage Insurance (PMI). Both of these mean the same thing.

When a borrower is required to carry MI or PMI, the borrower pays the premiums, but the lender is the beneficiary. The coverage protects the lenders against a default by the borrower. For instance, if a borrower can no longer make their mortgage payments and ends up in foreclosure, the mortgage insurance company ensures that the lender will be paid the balance of the loan payoff.

When doing a conventional loan you have two ways of paying for MI or PMI. One is to make monthly installments that are included in your payment, but will eventually drop off or go away.  The other way is to pay for the MI by accepting a higher interest rate. This option typically gives you a lower monthly payment but the rate never gets lowered when the MI would have been eliminated.

For more information please call 919-866-0212 to speak with a Loan Expert at Raleigh Mortgage Group to answer any questions you may have!

What NOT to do when applying for a Mortgage

If you are thinking about purchasing or refinancing, there are some things that you should not do. Now is the time to keep your financing stable and unchanged until after closing. If you need to make any changes to your financial situation, you should always call your qualified Raleigh Mortgage Group Loan Officer at 919-866-0212 to discuss the changes to ensure that your loan is not at risk of being denied or suspended.

DO NOT STOP PAYING ON YOUR EXISTING ACCOUNTS
Late payments on your existing accounts can be reported to the three credit agencies and can put your loan at risk. One 30‐day late payment can lower your credit score by 30‐75 points and get your loan denied.

DO NOT APPLY FOR NEW DEBTS
Applying for any new debt during your loan process can sabotage your loan. New monthly payments will affect your debt-to-income (DTI) ratio and could affect your interest rate or get your loan denied.

DO NOT CO-SIGN A LOAN FOR ANYONE
Whether you are making the payments or not, the Lender will look at that debt as if it is your debt and it will be calculated into your debt-to-income ratio and could disqualify you for your loan.

DO NOT MAX OUT YOUR CREDIT CARDS
Maxing out your credit cards is the fastest way to lower your credit score. When applying for a loan, keep your credit cards below 30% or lower then available limit.

DO NOT CLOSE ANY ACCOUNTS
Closing any accounts can have a huge impact on lowering your credit score. Once an account is closed the damaging information is held against you and good history will no longer positively effect your credit scores.

DO NOT MAKE RANDOM, UNDOCUMENTED DEPOSITS INTO YOUR BANK ACCOUNTS
Keep good records of large deposits other than payroll deposits and avoid moving money around from different accounts. Avoiding this will increase your chances of a smooth and easy loan process.

DO NOT MAKE CHANGES WITH YOUR EMPLOYMENT OR INCOME
Employment stability is key during the loan process. Quitting, changing jobs or even positions within the same company can greatly put your loan approval at risk. This is especially important for commission employees as they must have a two year history to calculate their income.

For more information please call Raleigh’s Local Loan Experts at 919-866-0212 to answer any questions you may have!