Ingrid B. Quinn

NMLS ID #211652 Arizona, Loan Consultant


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Pulling Credit Affects Your Credit Score

Credit Score

When I am talking to a client about preparing to buy a home, I always inform them to not apply for a new line of credit or credit card. Applying for a single credit card has a negligible effect on their score but applying for several in a short period of time does make a difference. Doing so can affect their over all credit score and can in turn change their eligibility for certain mortgage programs. When you apply for credit, an inquiry is generated. The creditor wants to determine what your current credit score is and what your credit history looks like in order to determine what program will best fit your needs and eligibility.

So, what is a credit inquiry? An inquiry is a notation on your credit report that someone has requested your credit file or that you have requested credit. Two types of inquiries may appear on a credit report. These are known as “hard” inquiries (can impact your credit score) and “soft” inquires (that don’t)

What counts as a hard or soft inquiry?

Applying for a loan or credit card can result in a hard inquiry, but applications not tied to a form of credit can result in a hard inquiry as well. A credit check for a new mobile phone or apartment, for example, can also generate a hard pull on your credit report. “The general rule is, if it is an inquiry that indicates that you may be taking on additional financial obligations, then that could be meaningful to your risk of being able to repay other debts,” says Maxine Sweet, vice president of public education for Experian, one of the three major credit bureaus. A cellular phone or apartment signifies the possibility of an additional monthly payment.
Soft Inquiries not related to a new financial commitment won’t hurt your credit score. These include credit checks from employers, companies sending preapproved offers of credit or insurance, existing creditors conducting periodic account reviews or your own request to see your credit file.

How inquiries are scored

Inquiries don’t count as much as payment history, revolving utilization and other factors that contribute to the calculation of a credit score. The actual impact of an inquiry can vary according to your credit history. If you have few accounts or a short credit history, inquiries can cost more points. The amount of points deducted may not be the same for each additional inquiry, as they might be scored in ranges. Past a certain threshold, the consumer could max out on the damage from numerous credit checks. Hard inquiries stay on credit reports for two years, but the length of time they impact the score depends on the scoring model (or credit bureau) used.

Multiple inquiries generated when rate-shopping for a mortgage, auto or student loan are consolidated by credit scoring models when done within a certain window of time. The FICO scoring model ignores multiple mortgage, auto and student loan inquiries in the 30 days prior to scoring but if shopping for all 3 in that window of time will alert lenders you are shopping for high priced items and reduce your score significantly. Stay off the new car lot when shopping for a home.
If you consider keeping credit inquiries to a minimum while shopping for a home loan you should be safe not to do any harm that will significantly impact your ability to get a quality mortgage. If you have questions or comments please contact me at Ingrid.quinn@cobaltmortgage.com or visit my website http://www.scottsdalemortgageexpert.com 


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Qualified Mortgage (Q.M.) What is it?

MortgageApproved
Qualified Mortgage (QM) and Ability to Repay rules are in effect on loan applications received on or after January 10, 2014. Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the new rules are designed to protect buyers from purchasing homes they can’t afford and provide lenders protection from liability when originating loans that meet the Qualified Mortgage standard.
What is a Qualified Mortgage?

A qualified mortgage is a home loan that has:
• Regular periodic payments in substantially equal amounts
• Been underwritten based on a fully amortizing payment schedule using the maximum rate allowable for the first five years after the date of the first periodic payment
• Verified the borrower’s income and assets; and current debts, including alimony and child support
• A borrower’s total debt-to-income ratio of no more than 43% (see “Temporary QM” for exceptions to this requirement)
• Met points and fees limitations
• None of the following features: negative-amortization, interest-only or balloon-payment features

Points and Fees

A loan must not exceed the limits listed below for points and fees for either Temporary or Standard Qualified Mortgages. These fees typically do not include those that are paid to third parties such as appraisers or title companies unless those companies are affiliated with the lender.

qm pic

Higher-Priced Mortgage Loans

For a lender to originate a Qualified Mortgage with safe harbor legal protections, the lender must ensure that the Annual Percentage Rate (APR) does not exceed certain thresholds. For 1st lien mortgage loans, the APR cannot exceed an index called the Average Prime Offered Rate (APOR) by more than 1.5%. For 2nd lien mortgage loans, the APR cannot exceed the APOR by more than 3.5%. FHA APR cannot exceed APOR +1.15% + annual NI%.

What does the Qualified Mortgage mean for you and your buyers?

Most loan programs today already adhere to the standards that make up the QM rule. The new rule simply formalizes that lenders must make – and document – a good-faith determination before closing the loan that the borrower has a reasonable Ability to Repay the loan. At minimum, this determination is made based on eight factors, which are already the tenets of mortgage underwriting:
• Current income or assets
• Current employment status
• Monthly mortgage payment
• Monthly payment on any simultaneous loan
• Monthly payment for mortgage-related obligations (taxes, insurance, HOA, etc.)
• Current debt obligations, alimony and child support
• Monthly debt-to-income ratio and residual income
• Credit history

There will not be a significant impact for loans that are eligible for Fannie Mae, Freddie Mac, FHA, VA or USDA. Although some jumbo and non-conforming programs will tighten their standards to the 43% debt-to-income threshold, most customers using these programs will still qualify.

The points and fees limitations and higher-priced mortgage loan limits are generally seen as a positive for homebuyers, as they will prevent many lenders from charging high ancillary fees, large amounts of discount points, and higher interest rates. However, there will be a small amount of riskier loan products that will be difficult to offer without violating the QM thresholds. Some lenders may decide to offer those mortgage products that are not eligible for QM safe harbor legal protection, but doing so will expose them to greater legal risks.


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First and Second Combo Mortgages are Making a Come Back!

983077351003885_mortgage-applicationI have recently come across loan pre-qualifications where a 1st and 2nd combination mortgage loan option may be the right solution for a client. One main reason that a client may wish to separate their total mortgage amount into two loans; avoiding P.M.I. (private mortgage insurance). Many lenders including Cobalt Mortgage offer these types of loan scenarios when buying a home. Use of the combination of a 1st mortgage and 2nd mortgage is when the total amount to be borrowed is to be separated in to two loans. This is typically done with the first mortgage being within conforming loan guidelines (loan amount depending on location of the home) and a secondary retail or private loan being is set up for the remaining amount. A conforming (Fannie Mae or Freddie Mac) first mortgage will typically have more favorable interest rates than a non-conforming loan. Second mortgages can be taken in typically 2 forms, as a Home Equity Line of Credit (HELOC) or a fixed rate mortgage.
PMI or Private Mortgage Insurance is required by Fannie Mae and Freddie Mac as well as most investors when a 20% down payment is not made. Private mortgage insurance is paid to protect the lender against loss if a borrower defaults on a loan. Some borrowers choose to use a 1st and 2nd mortgage loan option when they have money for a down payment; however it is not enough to meet the 20% requirement. I have discussed P.M.I. in detail in my previous blog “P.M.I. vs. M.I.P. What’s the Difference?” (Please feel free to visit that blog for further information on that subject) PMI may also be tax deductible for some clients but for those who it is not, may want the 2nd mortgage for the purpose of having tax deductible interest.
It is best to discuss your options with your mortgage lender and your tax professional for guidance on the options right for you. For questions or suggestions please feel free to contact me at Ingrid.Quinn@CobaltMortgage.com or visit me at http://www.ScottsdaleMortgageExpert.com or http://www.CobaltMortgage.com/IngridQuinn .