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Apache is functioning normally

September 30, 2023 by Brett Tams

More than 30 percent of North Las Vegas residents who own a home could be considered “house poor,” according to a new study from Chamber of Commerce, an online business resource website.

The municipality came in No. 11 in the country, with 18 of the top 50 cities falling within California. The study breaks down how much people still owe on outstanding mortgages, and approximately 61 percent of all homeowners nationwide are still in debt. Fontana, California has the highest percentage of people with unpaid mortgages in the country at 82 percent.

Collin Czarnecki, who led research for the study, which used U.S. Census data, said there are a few factors that contributed to North Las Vegas’ high ranking.

“North Las Vegas has experienced significant growth, which has attracted new homeowners to the area,” he said in an email response to the Las Vegas Review-Journal. “From 2012 to 2022, North Las Vegas’ population increased by 25 percent, according to the Census Bureau. The high percentage of new homeowners is also evident in the fact that the median homeowner tenure in North Las Vegas is only about six years.”

Czarnecki also noted there is a financial aspect to consider with the municipality. The city has 39,101 residents with unpaid mortgages, making up 76 percent of the population and an average monthly mortgage payment of $1,549.

“Thirty one percent of homeowners in North Las Vegas could be classified as ‘house poor.’ This means they are allocating more than 30 percent of their income toward monthly housing expenses, including mortgage payments and utilities. This financial strain may be causing homeowners in North Las Vegas to take longer to pay off their mortgages, as a significant portion of them are living beyond their means when it comes to monthly housing expenses.”

The city of Las Vegas ranked 56th out of all cities in the country (69 percent still have outstanding mortgages), and Henderson was 63rd and Reno was 88th. The study notes that 28 percent of Henderson homeowners could be classified as “home poor”, and that Henderson has seen a 25 percent population growth since 2012, and approximately 69 percent of its residents have unpaid mortgages.

Contact Patrick Blennerhassett at [email protected].

Source: reviewjournal.com

Apache is functioning normally

September 30, 2023 by Brett Tams

Though FICO® and VantageScore® ranges start at 300, most new credit users don’t start this low. In fact, if you’ve never taken out credit or applied for a loan, you might not have a credit score at all.

When applying for credit cards and loans, you begin to build credit, but you may be wondering—what does your credit score start at? Most people’s initial credit scores are between 500 and 700 points, depending on the steps taken when establishing credit. However, you won’t have a credit score to report if you’ve never opened a credit account.

Read on to learn more about your starting credit score and how to build your credit over time.

What Credit Score Does an 18-year-old Start with?

Contrary to popular belief, you don’t automatically receive a credit score the day you turn 18 years old. However, you need to be at least 18 years of age to apply for credit and start building your score. Remember that if you haven’t used credit yet, you likely won’t have a score at all.

Once you start using credit, you will get a score roughly three to six months after opening your first credit account. Your credit score will be calculated based on a variety of factors outlined in the next section.

How Are Credit Scores Calculated?

So, how are credit scores determined if everyone doesn’t receive the same default credit score? According to FICO, they use the following five factors to calculate your credit score:

Payment history: The most important factor to determine your credit score is your history of paying credit accounts on time.
Accounts owed: While owing money on credit accounts isn’t necessarily bad, using a majority of your available credit can lead to lenders viewing you as higher-risk.
Length of credit history: Generally, the longer your credit history, the better it is for your score since lenders have a more accurate assessment of your risk.
Credit mix: The different types of credit you have, such as credit cards, installment loans, and finance company accounts, are your credit mix.
New credit: Opening too many credit cards in a short period of time can hurt your score since doing so signals to lenders that you’re a greater risk.

How to build credit

If you’re new to credit, you may be wondering how to start building your credit in the first place. Receiving a loan without a credit score might be difficult, so FICO suggests the following ways to start building credit:

Become an authorized user on a family member’s credit card. You can be added to a card owner’s account, which allows you to make purchases with their credit card. Keep in mind that this method doesn’t have a large effect on your score but can be a good stepping stone to building credit.
Apply for a secured credit card. As a person with no credit, your risk to lenders is considered very high. A secured credit card requires you to pay a refundable security deposit to mitigate risk.
Report rent and other service providers. Credit and loans aren’t the only factors that affect credit. While landlords and utility companies typically don’t report to the credit bureaus, you can request that they do so to start building your credit.

How long does it take to build a 700 credit score?

According to FICO, a credit score of 700 or above is considered good. And since the national average credit score is 716 as of April 2022, it certainly is achievable, although it will take time. If you’re starting with no credit, you can expect building a 700 credit score to take at least six months of practicing positive credit habits.

Keep in mind that there are steps you can take to increase your initial credit score and reach your credit score goal of 700 or higher credit.

How to improve your initial credit score

So, how can you help make sure that you start out with a good credit score? Follow the tips below to improve your credit score.

Review your credit report. Once you open a credit account, be sure to view your credit report and look for any inaccuracies.
Be on time with your payments. Since payment history is the most important factor that influences your credit score, be sure to pay your bill on time and avoid missing payments.
Limit applying for multiple lines of credit in a short period of time. Applying for credit results in a hard inquiry, which may slightly lower your credit score. Too many of these hard inquiries in a short period of time can cause your credit score to drop.
Keep your credit utilization ratio under 30 percent. Credit utilization refers to the amount of credit you’re using divided by the amount that is available to you. For example, if your monthly credit limit is $1,500, aim to use under $450 each month.
Be patient. Again, the length of credit history is an important factor that contributes to your credit score. The more time that passes since you opened your account, the better for your score.

FAQs

Below, we’ve answered some common questions regarding your first-time credit score.

Does your credit score start at 0?

Your credit score doesn’t start at zero. In fact, the lowest credit score possible is 300. However, you likely won’t start at this score unless you’ve made actions that have damaged your credit score.

Does everyone start with the same credit score?

Everybody doesn’t start with the same credit score. As mentioned above, your individual credit score is based on a number of factors.

Is no credit worse than bad credit?

No credit means you lack a credit history, whereas bad credit means you’ve made credit-damaging mistakes, such as multiple late payments. While both scenarios can cause limitations, building credit from scratch is generally easier than rebuilding a bad credit score. As a result, it’s worse to have bad credit than no credit.

What’s a good credit score for young adults?

A good credit score is 670 and up. According to Experian®, the average credit score for young adults ages 18-25 is 679, so any score above that is considered above average for the age group.

How to check your credit score for free

Once you begin building credit, it’s crucial to follow responsible financial practices that will help you raise your credit score over time. And don’t forget to regularly monitor your credit to make sure you’re on the right track.

ExtraCredit by Credit.com gives you tools to manage your credit at an affordable monthly price so you have information you need to help you achieve your financial goals. Get started today.

Source: credit.com

Apache is functioning normally

September 30, 2023 by Brett Tams

It’s looking more likely that there will be a government shutdown beginning October 1st, which begs the question, what happens to mortgage rates?

Do they go up even more, do they fall, or do they do nothing at all?

At first glance, you might think that they’d rise because of the uncertainty involved with a shutdown.

After all, if no one is quite sure of the outcome, or duration, banks and lenders might price their rates defensively.

That way they don’t get burned if rates shoot higher. But history seems to tell a different story.

Bond Yields Tend to Fall During Government Shutdowns

As a quick refresher, mortgage rates track 10-year bond yields pretty consistently. So if the 10-year yield falls, long-term 30-year fixed rates often fall as well.

Conversely, if 10-year yields rise, which they have quite a bit lately, mortgage rates also increase.

The 10-year yield began 2022 at around 1.80 and is around 4.60 today. Since that time, the 30-year fixed has climbed from roughly 3% to 7.5%.

So there’s a pretty strong correlation between the two, though the spread between them has widened over the past couple years as well.

Since mortgage bonds are inherently riskier than government bonds, there’s a premium, or spread that must be paid to investors.

You used to be able to price the 30-year fixed mortgage at about 170 basis points above the 10-year yield. Today it might be closer to 275 bps or even more.

Anyway, the 10-year yield seems to fall during government shutdowns because of the old flight to safety.

And here’s what Morgan Stanley had to say on the matter: “On average, during shutdowns since 1976, the 10-year Treasury yield has fallen 0.59% while its price has ticked up, suggesting that investors favor the safe-haven asset during these periods of uncertainty.”

In other words, if the 10-year yield falls during the shutdown, 30-year mortgage rates should also drift lower.

How much lower is another question, but if they continue to track the 10-year yields, a .50 drop in Treasuries might result in a .25% drop in mortgage rates.

Did Mortgage Rates Fall During Prior Government Shutdowns?

Now let’s look at some data to see if mortgage rates actually fall when the government shuts down.

The most recent government shutdown took place from December 21st, 2018 until January 25th, 2019.

It was the longest shutdown in history, lasting 34 days. There was one in early 2018, but it only lasted two days.

I did a little research using Freddie Mac mortgage rate data and found that the 30-year fixed averaged 4.62% during the week ending December 20th, 2018.

And it averaged 4.46% during the week ending January 31st, 2019.

Of course, the shutdown drama started earlier in the month of December 2018 when the 30-year fixed was priced closer to 4.75%.

So if we factor all that in, you might be looking at a 30-basis point improvement in mortgage rates.

Prior to that shutdown was the one that occurred on September 30th, 2013 and lasted 16 days.

The 30-year fixed averaged 4.32% during the week ending September 26th, 2013, and fell to 4.28% during the week ending October 17th, 2013.

Not much movement there, but it did continue to drift lower in following weeks and ended October at 4.10%.

You then need to go all the way back to December 15th, 1995 to get another shutdown, which took place under President Clinton.

It lasted 21 days, ending during the first week of 1996. During that time, the 30-year fixed fell from around 7.15% to 7.02%, per Freddie Mac.

Prior to these shutdowns, most only lasted a few days and thus probably didn’t have much of an impact, at least directly.

All in all, mortgage rates did improve each time, though not necessarily by a huge margin. Still, any .125% or .25% improvement in pricing is welcomed right now.

A Lack of Data Makes It a Guessing Game

If the government does in fact shut down this coming week, it’ll mean that certain data reports won’t get released.

This means we won’t see the Employment Situation, scheduled for next Friday, nor will we see CPI report the following week.

There are many other reports that also won’t be released between this time and beyond, depending on how long the shutdown goes on.

As such, we’ll all be flying in the dark in terms of knowing the state of the economy. And the direction of inflation, which has been top of mind lately.

The good news is the Fed’s preferred inflation gauge, the personal consumption expenditures price index (PCE), already came out.

And it was weaker than expected. Prior to that report, we were getting some signs that the economy was still running too hot.

So the timing might work here in terms of higher bond prices and lower yields, which in turn would drive mortgage rates down too.

After all, our last piece of information was that inflation and consumer spending rose less than expected, which is good for rates.

Read more: How the Government Shutdown Affects Various Types of Mortgages

Source: thetruthaboutmortgage.com

Apache is functioning normally

September 29, 2023 by Brett Tams

Is your poor credit history preventing you from obtaining your financial goals, such as getting a credit card, buying a car, or purchasing a home? If so, there are steps you can take right now to improve your credit score in as little as three months.

This article provides actionable steps you can take today to start on the path to rebuilding your credit.

In This Piece

How Quickly Can You Improve Your Credit?

The exact amount of time it can take to repair your credit score depends on several factors, such as your current credit score, the amount of debt you owe, your ability to repay your debt, and your overall credit history.

Despite this, you can start making improvements in as little as three months. Below is a look at five things you can do to improve your credit score, along with tips to keep in mind.

1. Pay Off the Debt You Can

Start by paying off as much debt as possible. There are several strategies you can use to pay down your debt, including the debt avalanche method, the snowball method, and a debt consolidation loan. No matter which method you use, the faster you can pay down some of your debt, the sooner your credit can start to improve.

Keep in mind that it could take your creditors up to 30 days to report payments to the credit bureaus and another 30 days for the credit bureaus to post these payments to your account.

2. Minimize Your Credit Utilization

Your credit utilization ratio accounts for up to 30% of your overall credit score. This ratio compares the amount of credit you have available with the amount of credit you’ve used. It’s recommended to keep this ratio below 30%. If you’re having trouble hitting this number, here are some things you can do.

Ask for a Higher Credit Limit

If your credit utilization ratio is above 30%, you can ask your credit card company to increase your credit card limit. This strategy will increase the amount of credit you have available, which can help lower your credit utilization ratio.

Use as Little Credit as Possible

Instead of using your credit card to make multiple or large purchases, consider using another method to pay. The less you have charged to your credit card, the better your credit utilization ratio will be.

Taking these steps to decrease your credit utilization rate could start to improve your credit in as little as 60 days.

3. Keep an Eye on Your Credit Report

According to a recent study, 34% of Americans found at least one mistake on their credit report. Just one credit card error could damage your credit score. This is why it’s so important to keep an eye on your credit report.

You can request a free credit report from all three major credit reporting agencies, Experian, Equifax, and TransUnion, at annualcreditreport.com. Obtaining your credit report is just the first step; you also want to perform the following tasks.

Check Your Report for Errors

Carefully review your credit report to make sure all the information listed is correct, including your personal information and account details. Make a list of any incorrect information and any accounts or personal information that’s missing.

Dispute Inaccurate Information

The best way to remove incorrect information on your credit report is to file a dispute with the credit reporting agency. Write a dispute letter that clearly explains what inaccurate information is listed on your credit report and why it’s incorrect. Submit this letter, along with any supporting documents, to the credit bureaus listing the error.

Typically, the credit reporting agencies have up to 30 days to investigate your dispute and another 5 days to let you know their decision.

Ask if Lenders Will Remove Paid-Off Items From Your Report

Many lenders report past-due accounts to credit reporting agencies to entice customers to pay their debts. Once you pay your debt off, the lender may be willing to remove this debt from your credit report. Contact your lender directly to make this request.

It could take days, weeks, or months to receive a clear answer from your lender. If they do agree to remove this debt, it could take up to 60 days to reflect on your credit report.

How to Add Your Utility Bills to Your Credit Report

Typically, utility companies don’t report on-time payments to the credit bureaus. You can, however, work with a reporting service company, such as Credit.com’s ExtraCredit service, to make sure these payments along with your rent payments are listed on your credit report. This step can help prove you have a strong payment history.

Once you sign up for a credit reporting service, you can expect to see these payments on your credit report within 60 days.

4. Consider Applying for a New Line of Credit

Having a mix of different types of credit accounts, such as revolving credit accounts and fixed-payment accounts, makes up to 10% of your credit score. If you want to boost your credit score, it’s important to have a nice mix of different accounts. Below is a look at some types of credit accounts you may qualify for even if you don’t have good credit.

Are Credit Builder Loans Right for You?

As the name suggests, credit builder loans are designed to help you build credit. This type of loan is different from traditional loans, as you don’t have access to the money until you make all your payments. Obtaining a credit builder loan can be a great way to save money while building your credit because these lenders often report loan payments to the credit bureaus.

Types of Credit to Consider

If you can’t obtain a traditional credit card, there are other options, such as:

Secured credit card. With a secured credit card, you’ll be required to put down a cash security deposit prior to obtaining your card. Otherwise, these credit cards work just like traditional cards and can help you build your credit.
Authorized user. If you can’t obtain your own credit card, you can ask a friend or family member to add you as an authorized user to their account. If the credit card company reports your authorized user status, it can help build your credit.

Tips for Applying for New Credit

While maintaining a mix of credit accounts can help you build your credit, you want to make sure you don’t open too many new accounts too quickly. This action could damage your credit score due to excessive credit inquiries. Instead, take it slow and gradually open a mix of accounts.

Opening just two different types of credit accounts, such as a car loan and a credit card, can impact your credit as soon as they’re reported on your credit report.

5. Keep on Top of Your Finances

Keeping on top of your finances is a very important building block in your credit foundation. Start by building a budget and sticking to it. This step can make sure you don’t overspend, help you start to save money, and learn to be more conscious of how you’re spending your money on credit.

What to Do if You Don’t Have Credit

If you currently have little to no credit, you may be wondering how you can build credit in just a few months. Taking some of the steps above, such as working with a reporting service company, obtaining a secured credit card, or becoming an authorized user, can help you build credit as soon as they are reported.

Knowing how to raise a credit score in three months is just the first step. Now, it’s time to take action.

Sign up for ExtraCredit today.

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Source: credit.com

Apache is functioning normally

September 29, 2023 by Brett Tams

In May 2021, the median price for a home was $350,300. That reflected a 23% increase year-over-year, demonstrating that the housing marketing was bustling after the impact of the COVID-19 pandemic. But it’s not just a rise out of the pandemic that has created a competitive housing market in 2021 and beyond. The record high in May 2021 followed 111 months of year-over-year gains, starting in March 2012.

In 2021 and 2022, the housing marketing has been awash in demand. But there aren’t enough homes to go around, leading to bidding wars and other challenges for buyers. Looking at this landscape, you may wonder, can you buy a house with bad credit?

The Challenges of Buying a Home with Bad Credit

Mortgage lenders look at a lot of factors to determine if you qualify for a home loan. Of course, your annual income and debts are crucial, but your credit score is also a significant factor. Applicants with great credit scores—750 or higher—tend to have an easier time getting approved for a mortgage and getting the most competitive interest rates available. Applicants with credit scores below 650 may have a more difficult time getting approved for a mortgage or securing low interest rates.

For a mortgage lender, all applicants present some sort of calculated risk. Lenders perceive those with higher credit scores as being at lower risk of foreclosure or defaulting on their home loans. As a result, people with high scores can get a lower interest rate and more favorable terms on a loan. Unfortunately, those with bad credit scores are automatically perceived to be a higher risk and—if they can get a loan—may end up paying higher interest rates and having to agree to less appealing terms that come with a bad credit mortgage.

COVID-19’s Impact on Buying a Home

The pandemic had some impact on the mortgage-buying process. That’s true for individual buyers as well as the entire process.

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Homebuyers may have faced financial struggles during the pandemic, for example. Job or income loss could have led to difficulties paying bills or the need to take out loans to cover living expenses short-term. Those situations can impact credit and your ability to get a home loan.

At the same time, the Federal Reserve dropped interest rates in 2020 to help support the struggling pandemic economy. One result was that buying a house became very attractive, in part due to the lower overall cost of the loans.

Bad Credit in a Competitive Market

But now rates are increasing again—and may continue to rise throughout the year. Increasing rates may decrease competition between buyers, but they can make it more difficult for someone with less-than-great credit to buy a home for a number of reasons, including:

You may not be able to outbid others. Lenders may be willing to take a risk on someone with poor credit, but that risk is usually fairly limited. That means you may not be able to get approved over a certain amount, limiting how much you can pay for any home.
Your loan options may limit you. Buying a house with bad credit often means leveraging a government-backed loan, such as FHA or USDA loans. These loans must follow certain requirements about loan-to-value ratios, inspections and other steps to buying a home. In today’s housing market, having to stick to strict requirements can put you at a disadvantage.
Sellers may not choose your offer. Even if your offer is competitive, if you’re bidding with an FHA loan or other such financing, sellers may opt for a cash offer or one backed by a traditional commercial loan. Right or wrong, there’s some perception that cash or traditional loan offers are more likely to go through.

How to Buy a House with Bad Credit

It’s not all a lost cause, though. There are options for buying a home with poor or bad credit, such as Federal Housing Administration (FHA) loans. That’s true even in a competitive market.

FHA Loans

FHA loans have some of the most lenient qualification requirements. And they’re available to any homebuyer, not just first-time buyers.

To be eligible for an FHA loan, you need a credit score of at least 500. You’ll also have to meet other requirements, including appropriate debt-to-income ratios and not having certain types of open collection accounts in your credit history. Overall, you need to demonstrate to the lender that you’re reasonably able to pay the mortgage associated with the loan.

If you have a credit score between 500 and 579, the loan-to-value ratio is limited to a maximum of 90% on any FHA loan you might be approved for. That means you’ll need to come up with at least 10% of the purchase price as a down payment. For example, if you buy a home for $200,000, you’ll need at least $20,000 for the down payment.

If you have a credit score of 580 or above, you could be eligible for maximum financing. That means you may be able to get a loan with as little as 3.5% down.

VA Loans

Veterans Administration loans are available to military veterans and qualified spouses. The VA doesn’t set a specific credit score requirement for its programs, though it does state that borrowers will need to meet creditworthiness requirements. At the very least, the lender must determine that you have the means to pay the mortgage.

Some benefits of VA loans include:

They don’t necessarily require a down payment
No requirement for PMI, even if you don’t put down 20%
Competitive interest rates you might not be able to access elsewhere

USDA Loans

The United States Department of Agriculture offers mortgages to home buyers in eligible rural areas whose incomes fall in the low-to-average income range for their areas. The USDA doesn’t publish a minimum credit score requirement. It simply states that borrowers must have the willingness and ability to repay the loan, as demonstrated in part by their credit history. USDA lenders must look at three years of credit history.

Other Options

There are ways to increase your chances of getting approved for a mortgage with bad credit, even if you don’t want to go with one of the above government-backed options. Consider saving up for a larger down payment. A larger down payment reduces the amount you need to borrow and increases your likelihood of getting approved for a mortgage.

You may also be able to avoid the need for Private Mortgage Insurance with a higher down payment. Bypassing the need for PMI can easily save you $1,000 per year or more. It also frees up more money so you can pay down other debts, which can improve your credit.

Know Your Credit Score

If you’re thinking about trying to buy a home in the near future, the first step you should take is finding out where your credit stands. Begin by looking at your current credit reports and carefully reviewing them. Specifically, be on the lookout for any mistakes or errors on your report.

If you notice something incorrect on your report, you can file a dispute—most credit bureaus let you file a dispute online. You should also take the time to calculate how much of a mortgage you can reasonably afford before applying for one.

If you’re not sure what your credit score is, you can see your credit score for free on Credit.com. You also get a free credit report card that shows you ways to improve your credit score in each of the five areas that factor into how your score is calculated.

For even more information about where your credit stands, consider signing up for ExtraCredit®. You’ll get access to 28 of your FICO® scores, including the type of scores used by lenders to evaluate you as a mortgage borrower.

Once you know where you stand with your credit score and have done what you can to improve it, you can start shopping for mortgage rates and loans.

Source: credit.com

Apache is functioning normally

September 29, 2023 by Brett Tams

Has a close friend or loved one asked you to cosign a loan or credit card? You may be tempted to help them out. But does cosigning hurt your credit? Becoming a cosigner may not immediately affect your credit. However, there are many circumstances when this type of financial agreement could impact your credit negatively.

Before you agree to cosign on a credit card, student loan, car loan, home mortgage, or any other credit account, it’s important to understand the advantages and disadvantages of becoming a cosigner and what impact it could have on your credit score.

What Is a Cosigner?

A cosigner is someone who guarantees that they will be legally responsible for paying back a debt if the borrower cannot pay. Some of the best people to cosign are trusted friends or family members with a good credit history and a solid income history.

How a Cosigner Helps

A loved one might ask you to cosign to help them qualify for a loan if they:

Don’t meet the minimum income requirements for a loan
Have no established credit
Have bad credit
Meet the minimum income requirements, but their debt-to-income ratio is too high
Are self-employed
Changed jobs recently or their income is variable

Getting a cosigner only helps, though, if they pay their cosigned loan as agreed. Doing so will help them to build a good payment history, which will also give their credit score a lift.

If they manage their cosigned loan payments responsibly, they can reap the benefits and watch their credit score climb over time.

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How Cosigning Affects Your Credit

When you cosign a loan, credit card, or other credit account, you’re agreeing to be financially responsible for that loan. This means that if the primary borrower fails to make payments on the account, you’re legally liable for paying the remainder of the debt in full.

Although you’re the cosigner, lenders treat the loan as if it’s yours. Depending on the type of credit account or loan, it could impact your credit utilization ratio, which accounts for up to 30% of your credit score.

Does cosigning on a car loan for a family member affect your credit? Yes, lenders view this new loan as if it were your loan, affecting your credit utilization ratio. Depending on your specific situation, the new loan could lower your credit score almost immediately.

However, if the primary borrower continuously makes on-time payments, being a cosigner could positively impact your credit in the long run.

Does Cosigning Show up on Your Credit Report?

Once you cosign a loan or credit card, it’s likely to show up on your credit report. In fact, the only way the new credit wouldn’t show up on your credit report is if the lender fails to report it.

It’s important to note that most lenders report loans and credit accounts to the credit bureaus. Even if the new account doesn’t immediately show up on your credit report, the lender could report late or missing payments at a later date. If the loan goes into default or collections, this too could be reported on your credit report.

Not only is the new account likely to appear on your credit report, but it’ll show as if it’s your personal loan. Lenders don’t distinguish between your personal loans and those that you cosign.

Does a Cosigner Need to Have Good Credit?

The answer is yes. Lenders treat cosigners just as they do the primary account holder. They want to know that you can financially afford to pay for the loan and have a good credit history. Once you submit the application as a cosigner, the creditor will conduct a hard inquiry on your credit.

Before you agree to be a cosigner, you may want to check your credit score with Credit.com’s Credit Report Card. While each lender has its own credit requirements, most expect a cosigner to have good credit with at least a 670 credit score.

What Are the Disadvantages of Cosigning?

There are numerous risks involved in becoming a cosigner. The most crucial disadvantage is the impact cosigning can have on your credit. Not only can becoming a cosigner increase your credit utilization ratio, but late or missed payments, repossessions, and loan defaults can be detrimental to your credit.

If your credit score drops, you could have trouble securing new credit in the future. For example, you cosign a personal loan for a friend, and this friend stops making payments and defaults on the loan. This could damage your payment history and credit utilization ratio as well as lower your credit score. Depending on the impact on your credit score, it could affect your ability to secure a loan in the future, such as a car loan.

Most importantly, if the primary account holder fails to make on-time payments, it could destroy your relationship.

What Are the Advantages of Cosigning?

The biggest advantage of cosigning a loan is that it gives you the opportunity to help a loved one build their credit. You can also help a loved one reach their personal and financial goals. For example, cosigning a student loan for your child can help them obtain the degree they need for their career.

If all goes well, cosigning a loan may also boost your credit score. First of all, having a mix of credit accounts makes up about 10% of your credit score. If this is a new type of loan, it could help you improve that rating.

Secondly, if the primary account holder continues to make on-time payments, it can help boost your payment history.

Disadvantage of cosigning	Advantages of cosigning
You’re responsible for repaying the loan if the primary account holder stops paying.	You can help a friend or family member build their credit and reach their personal or financial goals.
Late payments, repossessions, loan defaults, and increased credit utilization can negatively impact your overall credit score.	Adding new credit could increase your credit mix, which accounts for up to 10% of your credit score.
Cosigning a loan could impact your ability to secure future credit for yourself, such as a car loan.	If the primary account holder continues to make on-time payments, it could boost your credit score.
Issues with the loan and payments could destroy the relationship between the cosigner and the primary account holder.

How to Remove Yourself as a Cosigner

Once you agree to be a cosigner, removing yourself from the account can be difficult, but not impossible. In almost all cases, you’ll need the primary account holder’s permission to remove yourself as a cosigner.

Some student loans and auto loans offer a cosigner release process. While this can make it easier, securing approval can still be very difficult. However, if the primary account holder has established good credit during the duration of the loan, it may be possible.

If the loan doesn’t offer a cosigner release option, it’ll likely require a new agreement with the lender to remove yourself as a cosigner. If the lender doesn’t agree to this arrangement, the primary account holder can consider refinancing the loan without a cosigner or taking out a consolidation loan. Since these would be new loans, both options will remove you from the cosigned loan.

Does Removing a Cosigner Affect Your Credit?

Removing yourself as a cosigner of a loan will also remove all the data related to that loan. So, if the primary cardholder made consistent on-time payments, removing yourself could actually lower your credit score.

If, on the other hand, that account has several missed or late payments, removing yourself from the loan could help repair your credit.

Questions to Think About

Before you agree to become a cosigner, there are several things you should consider, such as:

Do you have good credit?
Can you afford to take over the payments if necessary?
Do you trust the primary account holder?
Can the primary account holder afford the payments?
Does the primary account holder have a steady employment history?
Why does your loved one need a cosigner?
Are there other options to help your loved one build credit?

Knowing the answer to these questions can help determine if being a cosigner is the right option for you.

Source: credit.com

Apache is functioning normally

September 29, 2023 by Brett Tams

423 cases per 100,000 resident for state with highest identity theft

This post originally appeared on Finder.com.

As the world continues to cope with COVID-19, America is seeing cases of identity theft soar to record highs. Of the 3.2 million reports to the FTC’s Consumer Sentinel Network Data Book in 2019, 20% — or 650,572 — related to identity theft. And already in the first quarter of 2020, reports of fraud and identity theft are up 20.1% from the previous quarter.

The numbers could rise as more people continue to work from home and new reports of coronavirus-related fraud and scams come in.

Among these all-time-high cases, credit card fraud leads the charge.

I just watched a documentary on the dark web, and I will never feel safe using my credit card again!
Luckily I don’t have to worry about that. I have ExtraCredit, so I get $1,000,000 ID protection and dark web scans.
I need that peace of mind in my life. What else do you get with ExtraCredit?
It’s basically everything my credit needs. I get 28 FICO® scores, rent and utility reporting, cash rewards and even a discount to one of the leaders in credit repair.
It’s settled; I’m getting ExtraCredit tonight. Totally unrelated, but any suggestions for my new fear of sharks? I watched that documentary too.
…we live in Oklahoma.

Identity Theft vs. Account Takeover

Identity theft involves the unauthorized access of personal information, such as your name and Social Security number. Account takeover is when a fraudster accesses account information, such as credit card numbers, with the intent of committing fraud on existing accounts.

In 2019, victims reported $160.3 million worth of losses resulting from identity theft, according to the FBI. Credit card fraud made up the overwhelming majority of that $160.3 million.

This number represents only what was reported through the FBI’s Internet Crime Complaint Center. However, and doesn’t account for reports made directly to field agents.

Most Common Types of Identity Theft

Swiping the competition in 2019 was credit card fraud, which accounted for 41.78% of all identity theft reports to the FBI, followed by other identity theft, which includes fraud conducted via email and social media. The least common was government documents or benefit fraud at 3.54%.

Identity Theft and Credit Card Fraud by State

The dubious honor of state with the most identity theft reports goes to Georgia, with the Peach State logging 423 cases per 100,000 people in 2019–176 of those falling under the credit card fraud umbrella.

Florida came in just south of Georgia with 154 cases of credit card fraud per 100,000 people, followed by California and Texas.

The state with the fewest number of reports was South Dakota, with 47 reports of fraud per 100,000 people, followed by Vermont and Wyoming.

Several states in the middle of the country also came in at the middle of the pack, like Missouri and Colorado, with 41 and 45 reports of credit card fraud per capita, respectively.

Credit Card Fraud by Metro Area

Georgia maintains its top spot in individual metropolitan areas, accounting for three of the five areas with the most reports of identity theft per capita–Warner Robins, Atlanta-Sandy Springs-Roswell and Macon-Bibb County. A person convicted of financial transaction card fraud of more than $100.00 within a six-month period in Georgia can be charged with a felony. The ramifications can be a fine of up to $5,000.00 or a prison term of one and five years. On the flip side, Muncie, Indiana, logged the least number of reports at 37 per 100,000 people, followed by Glens Falls, New York, and Tullahoma-Manchester, Tennessee.

Top 10 metropolitan areas with highest identity theft per 100,000 residents – data

Rank	Metropolitan area	Reports per 100,000 residents	Number of reports
1	Warner Robins, GA Metropolitan Statistical Area	661	1,281
2	Atlanta-Sandy Springs-Roswell, GA Metropolitan Statistical Area	570	33,940
3	Miami-Fort Lauderdale-West Palm Beach, FL Metropolitan Statistical Area	556	34,458
4	Macon-Bibb County, GA Metropolitan Statistical Area	455	1,045
5	Memphis, TN-MS-AR Metropolitan Statistical Area	446	6,027
6	Columbus, GA-AL Metropolitan Statistical Area	433	1,322
7	Columbia, SC Metropolitan Statistical Area	411	3,420
8	Los Angeles-Long Beach-Anaheim, CA Metropolitan Statistical Area	410	54,553
9	Houston-The Woodlands-Sugar Land, TX Metropolitan Statistical Area	367	25,656
10	Dallas-Fort Worth-Arlington, TX Metropolitan Statistical Area	367	27,637

Top 10 metropolitan areas with lowest identity theft per 100,000 residents – data

Rank	Metropolitan area	Reports per 100,000 residents	Number of reports
1	Muncie, IN Metropolitan Statistical Area	32	37
2	Tullahoma-Manchester, TN Micropolitan Statistical Area	34	35
3	Glens Falls, NY Metropolitan Statistical Area	34	43
4	Lewiston-Auburn, ME Metropolitan Statistical Area	38	41
5	Appleton, WI Metropolitan Statistical Area	41	97
6	Owensboro, KY Metropolitan Statistical Area	41	49
7	Wenatchee, WA Metropolitan Statistical Area	42	50
8	Bismarck, ND Metropolitan Statistical Area	41	54
9	Ogdensburg-Massena, NY Micropolitan Statistical Area	43	46
10	Eau Claire, WI Metropolitan Statistical Area	43	72

Methodology

Finder sourced all data from the Consumer Sentinel Network Data Book 2019, released by the Federal Trade Commission in January 2020. The Consumer Sentinel Network Data Book uses reports in its Sentinel secure online database available to law enforcement only. These consumer reports are about fraud, identity theft and other consumer protection topics, with more than 3.2 million consumer reports filed in 2019.

The reports in Sentinel are sourced directly from:

People who call the FTC’s call center or report online
Reports filed with other federal, state, local and international law enforcement
Organizations like the Better Business Bureau and Publishers Clearing House

Source: credit.com

Apache is functioning normally

September 29, 2023 by Brett Tams

DBRS, Inc. (DBRS Morningstar) finalized its provisional credit ratings on the following Mortgage-Backed Notes, Series 2023-SRM1 (the Notes) issued by Brean Asset Backed Securities Trust 2023-SRM1:

— $109.3 million Class A at AAA (sf)
— $11.5 million Class M1 at AA (sf)
— $11.5 million Class M2 at A (sf)
— $15.7 million Class M3 at BBB (sf)
— $15.8 million Class M4 at BB (sf)
— $15.7 million Class M5 at B (sf)

The AAA (sf) credit rating reflects credit enhancement of 46.3% for Class A, AA (sf) credit rating reflects credit enhancement of 40.7% for Class M1, A (sf) credit rating reflects credit enhancement of 35.1% for Class M2, BBB (sf) credit rating reflects credit enhancement of 27.3% for Class M3, BB (sf) credit rating reflects credit enhancement of 19.6% for Class M4, and B (sf) credit rating reflects credit enhancement of 11.9% for Class M5.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

Lenders typically offer reverse mortgage loans to people who are at least 62 years old. Through reverse mortgage loans, borrowers have access to home equity through a lump sum amount or a stream of payments without periodically repaying principal or interest, allowing the loan balance to accumulate over a period of time until a maturity event occurs. Loan repayment is required (1) if the borrower dies, (2) if the borrower sells the related residence, (3) if the borrower no longer occupies the related residence for a period (usually a year), (4) if it is no longer the borrower’s primary residence, (5) if a tax or insurance default occurs, or (6) if the borrower fails to properly maintain the related residence. In addition, borrowers must be current on any homeowner’s association dues, if applicable. Reverse mortgages are typically nonrecourse; borrowers don’t have to provide additional assets in cases where the outstanding loan amount exceeds the property’s value (the crossover point). As a result, liquidation proceeds will fall below the loan amount in cases where the outstanding balance reaches the crossover point, contributing to higher loss severities for these loans.

As of the August 31, 2023, cut-off date, the collateral has approximately $203.70 million in current unpaid principal balance (UPB) from 189 active and 46 inactive reverse mortgage loans secured by first liens on single-family residential properties, condominiums, multifamily (two- to four-family) properties, and co-operatives. The loans were all originated in 2006 and 2007 and were originally securitized in the SASCO 2007-RM1 transaction. All loans in this pool are floating-rate assets with an 8.79% weighted-average coupon.

As of the cut-off date, the loans in this transaction are both performing and nonperforming (i.e., active and inactive). There are 189 performing loans, representing 79.85% of the total UPB. As for the 46 nonperforming loans, 19 loans are referred for foreclosure or in foreclosure (9.62% of the balance), eight are in default (2.50%), seven are liquidated/held for sale (3.21%), and 12 are called due following recent maturity (4.82%). None of the loans are insured by the United States Department of Housing and Urban Development (HUD); therefore, inactive loans (including the currently inactive loans) do not benefit from the typical insurance claim that HUD-insured loans experience.

The transaction uses a structure in which cash distributions are made sequentially to each rated note until the rated amounts with respect to such notes are paid off. No subordinate note shall receive any payments until the balance of senior notes has been reduced to zero.

DBRS Morningstar’s credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Note Amount and Interest Accrual Amounts.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is Rating and Monitoring U.S. Reverse Mortgage Securitizations (July 17, 2023; https://www.dbrsmorningstar.com/research/417277).

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

— Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://www.dbrsmorningstar.com/research/415687

— Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008

— Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023),
https://www.dbrsmorningstar.com/research/420106

— Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023),
https://www.dbrsmorningstar.com/research/420107

— Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023),
https://www.dbrsmorningstar.com/research/414076

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

Source: dbrsmorningstar.com

Apache is functioning normally

September 29, 2023 by Brett Tams

One of the key factors that determine your credit score is your credit utilization ratio. In fact, this ratio accounts for as much as 30% of your credit score. With this much influence on your credit score, it’s important to understand what credit utilization is, how to calculate it, and how it impacts your finances.

This article delves deeper into the answers to these questions. It also provides valuable tips for improving your credit utilization ratio.

In This Piece

What Is Credit Utilization?

In the most basic terms, your credit utilization is the amount of debt you owe in comparison to your overall credit limit. Only revolving credit is used when determining credit utilization. Things like mortgage loans, car loans, and student loans aren’t included.

What Is Revolving Credit?

Revolving credit is any type of credit account that continuously renews as you pay off the debt connected to that account. Some prime examples of revolving credit include credit card accounts and home equity lines of credit.

How to Calculate Credit Utilization

You can easily calculate your credit utilization ratio using a credit utilization calculator or the following formula.

Start by adding up all your revolving credit account balances.
Next, you need to add together the credit limit amounts for each of these accounts.
With this information, you can calculate your credit utilization ratio by dividing your total account balances by the total credit limits and multiplying this total by 100.

Credit utilization ratio formula: (Total amount of revolving credit account balances / Total credit account limits) x 100

How Balance Reporting Affects Credit Utilization

While credit card companies are under no obligation to report your credit information to the credit report agencies, almost all of them do. In fact, most credit cards submit your credit information every billing cycle. This means your credit card company will likely update your credit card balance every 25–30 days or so.

This frequent reporting affects your credit score because the amount of credit you have available versus your credit balances impacts your credit utilization ratio. Depending on your spending and repayment habits, credit card balance reporting could cause your credit score to change from month to month.

Understanding Per-Card vs. Overall Utilization

It’s important to understand the difference between overall credit and per-card utilization. Your overall credit card utilization combines all your revolving credit accounts into one ratio. Your per-card utilization only takes into account one card at a time. For per-card utilization, you can use a credit card utilization calculator or the formula listed above, but instead of adding all your account balances together, you calculate each card separately.

Most experts recommend keeping your overall credit utilization score under 30%. However, some creditors look at revolving accounts separately. It’s a good idea to spread your revolving credit across multiple accounts rather than just one or two credit accounts. This keeps the credit utilization from getting too high on any one card.

There are also two other utilization numbers that could be helpful to know:

Line-item utilization measures your individual credit card balances against your individual limits. For example, suppose you have three credit cards, each with a $10,000 limit. Based on your current balances, your line-item utilizations break down like this:
Card A: Balance of $4,500 / Credit limit of $10,000 = 0.45 × 100 = 45% utilization
Card B: Balance of $2,000 / Credit limit of $10,000 = 0.20 × 100 = 20% utilization
Card C: Balance of $3,300 / Credit limit of $10,000 = 0.33 × 100 = 33% utilization
Aggregate utilization is the average of your credit card utilizations. Calculate yours by combining your current balances and dividing them by your total credit limit. In the example above, your total balance is $9,800 and your total limit is $30,000; therefore, your aggregate credit utilization is $9,800 / $30,000 = 0.32 × 100 = 32.6%

Why Is Credit Utilization So Important?

Every factor of credit scoring is crucial, but credit utilization is responsible for 30% of your overall score, second only to your payment history’s weight of 35%. Credit utilization measures your revolving balances against your total credit limit.

Lenders and credit card issuers rely on credit utilization to predict risk and future behavior. In general, the higher your utilization ratio, the greater your risk of defaulting on your balances. Risky behavior isn’t rewarded in the world of credit scoring, and you may see a decrease in your scores as your utilization ratio goes up.

How Does Credit Utilization Affect Your Credit?

Your credit utilization ratio directly impacts your credit score. In fact, five primary factors influence your score for FICO and VantageScore, the two most common credit scoring companies used.

The Five Credit Factors

Payment history: Your payment history, including both on-time and late payments.
FICO: 35% of your credit score
VantageScore: 41% of your credit score
Credit utilization: The amount of debt you have compared the amount of your current available credit balance accounts.
FICO: 30% of your credit score
VantageScore: 34% of your credit score. This includes credit utilization, outstanding balances, and available credit.
Age of credit history: The length of time you’ve held each credit account.
FICO: 15% of your credit score
VantageScore: N/A
Account mix: The different types of accounts you have. You should have a variety of accounts, including installment loans and revolving credit accounts.
FICO: 10% of your credit score
VantageScore: 20% of your credit score
New credit inquiries that impact your credit score. Work at building your credit slowly to reduce the risk of too many hard inquiries to your account over a short period of time.
FICO: 10% of your credit score
VantageScore: 11% of your credit score

What Is a Good Credit Utilization Ratio?

Experts agree that you should try to keep your credit utilization ratio under 30% if possible. When it comes to revolving credit, you may also want to keep your credit utilization ratio under 30% for each account you have.

How to Improve Your Credit Utilization

If your credit utilization is higher than the recommended ratio of 30%, you can take several steps to improve your rate.

1. Check Your Credit Reports for Accuracy

It can’t be stressed enough how important it is to check your credit reports for accuracy. You’re entitled to one free credit report from each of the major credit reporting agencies every year. If you haven’t requested your credit reports within the last 12 months, do so today.

Once you receive your credit reports, make sure your personal and financial information is correct and up to date. If you notice any errors, take the necessary steps to file a dispute with each credit bureau reporting the error.

2. Pay Down Your Balances

Another step you can take to lower your credit utilization ratio is to pay off some of your debt. There are several methods you can use to pay off your debt, including a debt consolidation loan, the avalanche method, and the snowball method. The more debt you can pay off, the bigger impact it will have on your credit utilization ratio.

3. Request a Credit Increase

Requesting a credit limit increase on one or more of your revolving credit accounts can also help to improve your credit utilization. Keep in mind that this strategy only works if you also limit spending on these accounts. If you use these increased credit limits to make more purchases, it could actually increase your credit utilization ratio.

4. Consider Balance Transfer Cards

Another option for lowering your credit utilization ratio is to open a balance transfer card. Many of these cards offer a 0% introductory interest rate. Transferring your balances to this new card won’t decrease your credit utilization. But it can help reduce your interest costs and keep your utilization rates from increasing each month. This can also help you pay down your debt more quickly.

5. Change Your Bills’ Due Dates

If you’re having trouble making your credit card payments on time, you can request to have your due date changed. For example, if you get paid on the 1^st and 15^th of each month, you may want to move your due date closer to the 20^th.

This step ensures you’ll have enough money to make these payments. Making your due date closer to your payday can also encourage you to pay off more of your balance before you have time to spend your money on other things.

Does Opening Credit Cards Improve Your Credit Utilization?

Opening a new credit account can help to improve your credit utilization ratio by increasing the amount of credit you have available. However, if you use this card to make more purchases and can’t pay the balance off each month, it can actually hurt your credit utilization ratio. The exception is if you open a new balance transfer credit card account to get better interest rates. This transfer strategy won’t increase your credit balance, but it may help you pay down your debt faster.

Keep in mind, however, that opening new lines of credit can also negatively impact your credit score by creating more hard inquiries on your credit report.

Does Closing Credit Cards Improve Your Credit Utilization?

Unless you absolutely need to, it’s not recommended to close your credit card. First, closing your credit card can lower the amount of credit you have available. Secondly, you could lose the history attached to the card.

The age of your credit history represents up to 15% of your overall credit score for FICO. So, keeping an account open, even if you have a very low balance on it, can help to improve both your credit utilization and your credit score.

Sign up for Credit.com’s ExtraCredit today to access FICO scores, reports from all three major credit report agencies, and more.

Source: credit.com

Apache is functioning normally

September 29, 2023 by Brett Tams

An FHA loan is a mortgage loan that’s provided under a program from the Federal Housing Agency (FHA), which is a part of the U.S. Department of Housing and Urban Development (HUD). These loans offer prospective homebuyers with lower credit scores and down payments the change to purchase a home. These loans are insured by the FHA, but they are not made by the FHA. Find out more about FHA loan limits, credit requirements, and other factors related to these mortgage loans below.

In This Piece

What Is an FHA Loan?

An FHA loan is a loan insured by the Federal Housing Administration. That doesn’t mean the FHA gives you the loan. You have to go through an approved FHA lender for this type of mortgage. The fact that FHA loans are insured by the federal government reduces some of the risk for lenders. That can make it easier, in some ways, for borrowers to get approved.

Difference Between an FHA Loan and Conventional Mortgage

The most popular—and perhaps most widely known—types of mortgages include conventional home loans, called conventional fixed-rate mortgages, and FHA loans.

Conventional home loans are not insured by a government agency, such as the FHA or the US Department of Veterans Affairs (VA loans). Conventional loans require credit scores of at least 620. In exchange for higher interest rates, you can put down as little as 3% for a conventional home loan. With a lower down payment, you’ll have to pay personal mortgage insurance (PMI) either upfront or monthly for a conventional home loan. And, a conventional loan has a higher interest rate and requires a lower debt-to-income ratio than an FHA loan.

An FHA loan, on the other hand, is insured by the FHA. People with credit scores as low as 580 can qualify, but down payments need to be 3.5% or higher. FHA loans require a mortgage insurance premium be paid upfront and as part of the monthly payment. Interest rates for FHA loans are lower than with a conventional loan. And borrowers can have higher debt-to-income ratios compared to borrowers using a conventional loan.

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	FHA Mortgage Loan	Conventional Mortgage Loan
Required Credit Score	500+ credit score	640+ credit score
Credit History Impact on Qualification	Shorter wait times after negative credit events, such as foreclosure, short sale, bankruptcy and divorce	Longer wait times after negative credit events, though some lenders may be flexible depending on circumstances
Typical Down Payment	As low as 3.5%	As low as 3%, with advantages for a larger down payment
Mortgage Insurance	Requires both a 1.75% upfront premium and 0.45%-1.05% annual premium	Unless you make a 20% down payment, you must buy private mortgage insurance. Usually this is included in the cost of the loan and can be canceled when you have 20% equity or more
Typical Interest Rate	Lower interest rates than a conventional loan for many borrowers	Potentially higher interest rates than an FHA loan, unless you have stellar credit and a large down payment
Required Debt-to-Income Ratio	Higher debt-to-income ratio acceptable	Lower debt-to-income ratio than an FHA loan

Types of FHA Loans

The FHA offers a number of loan programs you might be able to take advantage of:

FHA Loan Limits

How much you can finance with an FHA loan is limited. The exact figures depend on the location of the property and what type of property it is. You can use the US Department of Housing and Urban Development’s FHA mortgage limits tool to find out the numbers for your location.

The FHA mortgage limit floor in 2022 is $420,680, and the ceiling is $970,800.

Individual FHA loans are also limited by the value of the home being purchased. At most, you can get an FHA loan for the total value of the property in question. However, people with lower credit scores may not be able to borrow that much.

FHA Loan Credit Requirements

The minimum credit score requirement for an FHA loan is 500. If your score is less than 500, you can’t be approved for an FHA mortgage loan.

If your score is between 500 and 579, you can get an FHA loan, but you can’t be approved for maximum value. At most, lenders can approve you for up to 90% of the value of the home. That means you’ll need at least 10% as a down payment. It could be more depending on other factors, including your credit history, income, and current expenses.

If you’re buying a home for $200,000 with a low qualifying credit score, then, you might need to pay $20,000 or more as a down payment.

For borrowers with a score of 580 and higher, maximum financing is possible. Typically, that means a down payment of 3.5%. In the case of a $200,000 home, that would equal $7,000.

FHA Loan Documentation Requirements

When you apply for an FHA loan, plan on providing the lender with the following documentation:

Driver’s license
Social Security number
Last paycheck
W-2s for the past two years
Valid tax returns for two years
Bank, investment, and credit card account statements for three months
Signed and dated letters detailing any gift funds used to purchase the home, that must explicitly state that you don’t need to pay back the money.

There are no minimum or maximum salary requirements to qualify for an FHA loan. If your lender requires any additional documentation, they can walk you through the requirements to ensure you have everything in order.

FHA Loan Property Requirements

In addition to your required documentation, there are property requirements as well.

FHA loans can only be used for the primary residence of the borrower.
They cannot be used for second homes.
They cannot be used to buy investment property.
One of the homebuyers must occupy the home within 60 days of closing.
You can only use an FHA loan to buy a multifamily home (up to four units) if you plan to live in one of the units.
An FHA appraisal and inspection are required to determine the fair market value of the home.
They cannot be used to flip a home.

Benefits of FHA Loans

There are many potential benefits for FHA loans:

Lower credit score requirements than conventional mortgages
Fairly competitive interest rates
Lower down payment requirements than many other options
Shorter wait times after negative credit events, such as foreclosure, short sale, and bankruptcy

Certain fees may be lower on an FHA loan, too, particularly when it comes time to closing. The FHA loan program allows for coverage of some of those costs by the seller or another applicable third party.

Disadvantages of an FHA Loan

If your down payment is lower than 20%, the disadvantage you’ll face with an FHA loan is the MIP. Costs for MIP are typically higher than the private mortgage insurance (PMI) borrowers have to pay on conventional loans—especially when you account for the upfront MIP you’ll pay on an FHA loan.

The upfront MIP (UFMIP) fee is 1.75% of the base loan amount, which gets applied regardless of your loan term or LTV ratio. The annual MIP fee, paid in 12 monthly installments, depends on the terms of your loan and your loan-to-value ratio. Annual MIPs range from 0.45% to 1.05% of the amount you’re borrowing and your loan term.

MIP is harder to cancel than PMI on a conventional loan. Conventional mortgage lenders let you out of PMI once you pay your mortgage down to 78% of the home’s value at the time of purchase. Plus, you can ask your lender to cancel your PMI on a conventional loan early if you’ve paid your mortgage down to 80% of that original value ahead of schedule.

And, if you put a smaller down payment on an FHA loan, your mortgage payment will be higher than a conventional loan with a higher down payment.

COVID-19 and FHA Loans

The COVID-19 pandemic did have an impact on FHA loans. For example, HUD notes that while processing for FHA loans continued during the pandemic, changing remote worker situations could lead to delays. FHA loans, which are federally backed, also qualified for forbearance options during the pandemic. This provided some relief to homeowners struggling to pay their mortgages due to income loss. These specific relief measures have expired, but federally backed loans may see other benefits like this that conventional mortgages don’t qualify for.

For future buyers in the years after the COVID-19 pandemic, the biggest impact may be buying power. FHA loans require inspections and have rules about appraisals and prices that conventional loans don’t have. When bidding for homes in a competitive market—where cash buyers and those backed by conventional mortgages are bidding well above asking price—FHA buyers may find it harder to compete.

Should I Consider an FHA Loan?

The FHA loan program is great for borrowers who don’t have a lot of cash on hand for a down payment or need some flexibility when it comes to underwriting. That’s true for first-time home buyers and people buying their second or third homes too. It is also an ideal option for people with lower credit score—lower than the 620 minimum for a conventional loan.

If you do have the resources to make a large down payment and your credit score is in good shape, you may be better off going with a conventional home loan—given that you can skip the PMI.

Of course, regardless of type, you should only get a mortgage you can repay. Learn how much house you can afford as a starting point.

Prepare for Your House Hunt

The best way to arm yourself for house shopping—in any market—is to do your homework. Start by getting a look at your credit report and scores to avoid any surprises. Take time to build or repair your credit where possible before you apply for a mortgage. Then, look at your budget to figure out how much house you can afford.

Then browse options for mortgages to find competitive rates and a short list of lenders you want to work with. FHA loans are great tools, and they can be especially helpful for those with lackluster credit. But make sure you consider all your options before you settle on a loan.

Source: credit.com