2010 Real Estate Guide
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Good credit score of past not so good now

Worse news may be on the horizon. "There are many factors, including proposed legislation and regulation, that continue to change the mortgage lending landscape," says David Chung, managing director of Towson, Md.-based CreditXpert Inc., which provides credit analysis services to consumers. "In the near term, it is more likely that this benchmark will continue to rise than fall."

Surprise, surprise

Joe and Jane Homeowner have likely heard of the new credit restrictions. But the actual cost to them is often a surprise when they sit down with a broker.

"Often, lenders will quote rates that include the adjustments, without calling attention to them, in order to avoid a negative reaction from their customer," says James Guthrie, a partner in New Home Finance in Suwanee, Ga.

Less surprising are other factors that go into securing financing for a new or existing mortgage. Paola Kielblock, national products manager for Sun Prairie, Wis.-based Fairway Independent Mortgage Corp., clarifies today's requirements:

  • Good credit.
  • Stable job, with a minimum of two years of employment.
  • Reserves after closing, including a minimum of two to six months of mortgage principal, interest, taxes and insurance.
  • Down payment from the borrower's own funds.
  • Low debt-to-income ratio. The required ratio varies between banks but is generally less than 40 percent, according to many in the industry.
  • Good loan-to-value percentage. It also varies, but it's often cited as less than 80 percent.

Having equity in your home is a major factor in getting approved for a refinance and in finding the best rate, says Cameron Findlay, chief economist for LendingTree.com. The more equity in the home, the less risk there is to the lender if the home is repossessed.

Taking action on your score

What can a homeowner who wants to refinance do with a good FICO score that's not good enough?

"Virtually everyone can raise their scores by at least 10 (points) to 20 points, sometimes significantly more in 30 days," Anderson says. Here's what to do.

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1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf, says Chung. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual's three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, Kielblock notes that credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

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