|
|
|
|
Home
> Loan Process
 |
 |
About
Credit Reports, Appraisal & Title
The
Credit Report: A snapshot of your financial management
history
While most people applying for a home mortgage have an
idea as to whether or not they may qualify, they don't
know for sure. Reviewing your credit report before beginning
the application process is always a good idea. Not only
will you be better prepared—you can take steps to
correct any credit flaws or invalid information before
the mortgage process begins.
Your credit profile consists of information gathered from
credit reporting agencies, compiled into a consumer credit
snapshot. This picture is drawn from five categories of
information that focuses on how you manage debt. It includes:
 |
Personal, identifying
information |
|
Information about your employment
or occupation |
|
Credit and debt details |
|
Public record information |
|
Credit inquiries or any reviews of
the credit profile |
Information about your income, health, race, religion,
driving record or criminal record, political preference,
or income is not part of a credit report.
Credit
Rating: Interpreting your credit score
The credit rating, or credit score, is a numerical, statistical
method of evaluating the credit risk of a mortgage application.
The score measures both positive and negative payment
activity, delinquencies, current debt and types of credit.
This number is also influenced by the length of time credit
has been established and the number of inquires into a
credit profile. These scores help mortgage officers and
underwriters determine the right loan program for the
borrower. It’s important to keep in mind that this
is just one factor in qualifying for a loan and acquiring
the loan’s interest rate.
The FICO score is the credit score most often discussed.
Developed by Fair, Isaac & Company, Inc., the FICO
score ranks information compiled from the three primary
credit bureaus: Equifax (Beacon), Experian (formerly TRW),
and Empirica (TransUnion). You can think of a FICO score
as a storehouse of credit information, with the number
arising from five factors:
|
35% of the score is payment
history |
|
30% represents debt currently owed |
|
15% is length of credit history |
|
10% is factored from numbers of credit
inquiries or attempts to get new credit |
|
10% is based on types of credit,
like mortgages, credit cards, and installment credit |
How do you interpret your credit
score?
|
If your score is 680
or more, you’re ranked an A+ borrower. You
can expect rapid approval, a quick closing and to
qualify for the lowest interest rates, provided
other factors are in order. |
|
If your score is below 680 but more
than 620, you can expect underwriters to look more
closely at your mortgage application. You may need
to provide extra documentation to get final approval.
You might still qualify for an ‘A’ loan
and interest rate, but do expect the loan to close
slower. |
|
If your credit score is below 620,
it’s likely your loan will be referred to
a sub-prime lender and that you won’t qualify
for the best rate and terms. Your F&M Mortgage
Group consultant may also need more time to find
you the best rates. |
When a Report is a Problem
If your credit score is low or your credit report reflects
problems such as any bankruptcy, foreclosures or debt
collections and charge offs, discuss these issues with
your F&M Mortgage Group consultant. He/she will
assist you in preparing a Letter of Explanation to identify
and detail the underlying reasons for credit difficulties—perhaps
unemployment, divorce, poor health or illness, family
crisis or another sudden financial setback. If your
credit report shows you’ve corrected past problems
and reestablished good credit with on-time payments
for a year or more, your credit is probably satisfactory.
Your consultant can help you move more easily through
the mortgage process.
If you have problem credit, we will work with you to
ensure all other components of your loan application
are in order. It is important that you provide evidence
of equity, income and employment stability, assets and
any other documents that will have a bearing on approval.
In addition, we offer these suggestions to improve your
credit score!
|
Pay your bills on time,
keeping in mind that your mortgage payment history
will have the greatest influence on your loan application. |
|
Keep credit card balances low. |
|
Keep limits low on credit accounts. |
|
Cancel more recent zero balance accounts
that can lower your score. Do it officially, since
a zero balance doesn’t mean the account is
closed. |
|
Be cautious in applying for credit—frequent
requests or credit report checks lower your score.
Be sure your credit is checked only when you really
need it. |
|
Review your credit profile and make
sure that it is accurate. If not, take steps outlined
by the major credit bureaus to repair your credit
report. |
|
And, be aware that the score is also
computed from credit patterns that identify a willingness
to pay. For example, your score will be affected
less if you have a brief span of ‘late-pays’
rather than random delinquencies over a long period
of time. |
The Basics of a Real Estate Appraisal
A real estate appraisal is a way to value and document
rights of ownership. Not only does a licensed appraiser
define the property to be appraised, the appraiser must
also examine the market to measure the value against similar
property, rights and real estate. An appraiser gathers
data for comparable properties in the area and examines
the property thoroughly to determine the real estate site
and physical condition. Once the appraisal is complete,
the appraiser provides the research and inspection to
the F&M Mortgage, along with a final opinion of the
property's value.
Three common approaches to real estate appraisal—based
on the market—are used to obtain the opinion, or
estimate of value:
|
The Comparison
Approach uses other benchmark properties,
called comps, that are comparable in size, location
and quality. Recent sales of comps drive the value
estimate. |
|
The Cost Approach
method looks at the current cost of replacing the
existing improvements and is affected by physical
deterioration, functional and economic obsolescence. |
|
Appraisers use the Income
Approach for rental properties; it’s
seldom used to determine the value of single family
homes. It considers the price a wise investor would
pay based on the net income the property generates.
|
The Basics of the Real Estate
Title
The property title is a legal declaration of ownership
and identifies delinquent mortgage payments, debts, or
liens on the property. As a rule, sellers pay for the
title report since they must guarantee clear title. As
a buyer, you can get information about property by ordering
a preliminary title report, called a title search, which
will also indicate previous owners and sales. Title companies
compile this information from public records. They offer
title insurance as a way to guarantee their findings.
Types of Title Insurance
Title insurance is issued by the title company and is
usually required by lenders as a way to guarantee that
real estate is free of liens. While the cost of insurance
varies, many times, it is based on the information in
the title report. Two kinds of title insurance are available:
|
A lender's policy:
This policy protects lenders against a loss due
to unknown title errors or defects and ensures that
the lender is first in line for liens against the
property, should the need arise. |
|
An owner's policy:
Owner's policies protect the buyer from the unpredictability
factor—from human error to forgery—arising
after sale of the property. The buyer pays when
the policy is issued. In some states, a seller buys
title insurance to guarantee that the buyer is getting
a clear title and in other states, the buyer pays
for the policy to protect the lender. The owner's
policy is the only policy that will protect the
owner from personal loss, such as legal expenses.
|
Buyers should examine the title report and discuss
findings with their mortgage consultant, the seller
or other parties interested in the sale. You can demand
that the seller clear any issues on the report to protect
your investment.
|
| |
|
|
