How Delinquency Affects Your Credit Score

Borrowers with late mortgage payments don't have any idea how much it will affect their credit scores and how long it takes to repair the damage. 

Credit or FICO scores help banks and other lenders determine a borrower's credit worthiness. FICO scores are broken down into 5 categories namely payment history, amounts owed, length of credit history, new credit and types of credit used. Payment history has the biggest impact on a borrower's FICO scores. A missed payment will have the longest and lasting impact on the score. The more recent the missed payment occurred, the greater the impact and the more missed payments you have, the longer it will take to restore the scores. (Source: www.realtytimes.com) 

Source: http://www.myfico.com/crediteducation/whatsinyourscore.aspx

If a delinquent home buyer wants to buy another home, their low FICO scores may keep them from qualifying for good rates.  Borrowers with poor credit may pay higher interest rates, or worst, they might not be able to qualify for a loan at all. Not only that, they will also pay high interest rates on all credits i.e. car loans and credit cards.   It will take years to get back on track again.

For delinquent buyers that want to improve their FICO scores, pay all your loans on time. Use at least one credit card and pay in full each month to avoid finance charges. The on time payments will offset negatives from the past. 

Over time the credit scores will improve. The length of time it takes to repair the damage will depend on how serious the non-payments were. 

For more information on FICO scores, please contact me for a list of preferred lenders whom specialize in structuring a successful path for home ownership.

 

 

Pay Off Your Loan in Half the Time!

Normally, when buyers plan to purchase their home, they first think of the traditional fixed rate 30-year mortgage. It's the most common form of financing, maybe because it has the lowest monthly payment. Adjustable rate mortgages can give you less up-front payment, but the monthly payment can significantly go up few years 

down the line when the rates are recalculated as per market rate.

With historically low mortgage rates, buyers naturally want to take advantage and lock in their 30-year fixed rates at the lowest possible rate before the Fed allows the rates to increase. 

However, there will be a new option available to the low income buyers and those buyers that are still tied to their student loans but earning a steady income.  Currently, the Wealth Building Home Loan or WBHL is at it's test stage.  The WBHL has a generous credit requirement, incomes bears more weight than FICO scores. It also offers faster equity build up as compared to the traditional 30-year mortgage.  "In the first three years of the WBHL, 77% of monthly mortgage payments pay off the principal, creating huge amounts of equity," says Edward Pinto of the American Enterprise Institute International Center for Housing Risk. While the payment for the first half of the 30-year fixed mortgage rate goes to the interest alone. 

In the WBHL, majority of the mortgage payment will go to equity in the home.  Home buyers have the option to use their down payment to buy down the interest rate. Or, if they don't have money for down payment, they can use a 3% seller concession to buy down the interest rate to near zero. For every 1% paid upfront, buyers can get .5% point discount in their interest rate, twice the industry standard for rate buydowns. Bank of America will hold the 15-year mortgage loans and subsidize the interest rate buydown. (Source:www.realtor.com) Mortgage payments are slightly higher with WBHL, but the buyer can pay off the loan in half the time.