Ask the Banker

by Kevin Hassan

Kevin Hassan is the Mortgage Branch Manager at HomeStreet Bank, located at 1238 State Avenue in Marysville. He can be reached at (360) 651-2777.

7/31/08

FHA makes more options available for homebuyers

If you’re in the market to purchase or refinance a home or condo, you, like many others, may find that an FHA loan is the best option.

Earlier this year, the federal government announced new, higher Federal Housing Association (FHA) loan limits. The increase in loan limits has meant that many more people are now able to use an FHA loan when they’re buying or refinancing. In Snohomish County, the loan limit went from $362,790 to $567,500. This gives a huge advantage to a lot of people: first-time homebuyers, buyers who need a “jumbo” loan for a higher-priced home, those who want to refinance with cash back, and those who have had difficulty obtaining conventional financing.

FHA loans provide a great and reputable option to current and prospective homeowners at a time when many sources of mortgage finance have become more restrictive.

And that’s not all. FHA has modernized and streamlined its business practices, making these loans much easier and quicker to process. In fact, nationwide, there’s a big increase in the number of borrowers taking out FHA loans – and for good reason.

What makes FHA such a great option for so many buyers?

Rates: FHA rates are competitive and sometimes lower than conventional loans. FHA borrowers get the same low interest rate as "prime" borrowers, with no added points or fees for credit scores between 620-720.

Down payment: FHA loans require only 3% down, and the down payment funds can be gifted to the buyer. In addition, FHA allows a seller or third party to pay up to 6% of the closing costs. This can make a big difference to a first-time homebuyer.

Flexibility: FHA loans have more flexible qualifying requirements than those of conventional loans, and also allow for lower credit scores. (In fact, if you have had credit problems such as a bankruptcy, it is easier to qualify for FHA than for a conventional loan.) And FHA offers both fixed-rate and adjustable-rate mortgages for 15- and 30-year terms.

Security: FHA loans are federally-insured and include safeguards including built-in “loss mitigation” measures.

FHA loans are assumable and can be used for purchases or refinances, making them a particularly good alternative for buyers who want to move from an adjustable to a fixed-rate mortgage. For those looking to refinance, FHA allows up to 95 percent “cash back” (with some restrictions). The mortgage insurance is lower than with conventional loan products, plus a portion of the mortgage insurance on FHA loans may be tax-deductible.

FHA also offers “rehabilitation” loans for homes that need repairs. You can purchase a home that needs a lot of work with the convenience of one mortgage payment, and complete the repairs after you buy the home.

With the market moving more towards one that favors buyers, FHA is an option that people should be sure to consider as they review their financing alternatives.

7/03/08

Staying on top of your credit score

Whether you’re applying for a credit card, car loan or a mortgage, lenders want to know how much risk they’re taking by loaning you money. As a consumer, it’s in your best interest to be aware of your credit standing.

Credit scores are often called “FICO” scores (from “Fair Isaac and Company”). Your credit (or FICO) score is based on information held by the three major credit reporting agencies: Experian, Equifax and TransUnion. These agencies keep track of your credit use and provide the information to lenders.

Most lenders use a variety of factors, including your FICO score, to decide if they consider you a good risk. Although not every lender evaluates risk the same way, your credit score largely influences what credit is available to you, as well as the terms.

FICO scores are calculated from different categories of credit data in your report.

Approximately 35 percent of your score is based on payment history, 30 percent on the amount owed, 15 percent on how long you’ve been using each credit source, 10 percent on applications for new credit and 10 percent on types of credit used.

There are several things you can do to increase your credit score. Some of them take time to accomplish, so it’s a good thing to start thinking about this several months before you anticipate needing a loan, especially if there are any problem areas in your credit.

For example, consumers should bring any past due accounts current by making payments. Pay down outstanding revolving debt as close to zero as possible. If you’re unable to pay off accounts completely, pay them below 30 percent of the credit limit.

Keep new applications for credit to a minimum. Don’t open a number of new credit cards just to increase your available credit. This can backfire and actually lower your score.

If you find an error on your file, contact the credit reporting agency as well as the creditor in writing. List the account(s) in question and indicate why you are disputing the item, providing any supporting documentation you have available. To get more information on the process, as well as other helpful information on credit scoring (including how your credit score can affect your borrowing power), check out www.myfico.com/crediteducation. Every consumer should read it.

Keep in mind your credit score changes over time. As your data changes (such as balanced owed on a credit card), it will affect your credit report and may affect your score as well.

If you are a first-time homebuyer with limited credit history, you can, in most cases, use “non- traditional” credit information. Homebuyers will need at least four of the following non-traditional pieces of credit with a minimum of 12 months of payment history: rental (housing, furniture, appliances); public utilities (water, gas, electric); communications (telephone, cable, satellite, mobile phone) or insurance (auto, life, renters insurance). Ask your lender for advice.

Every consumer should know what’s in his or her credit report and is entitled to a free copy each year at www.annualcreditreport.com. And be sure to talk with your lender about how you can be in a position to have your credit score work for you. A good lender will take the time to help you navigate the waters.