When purchasing a home, finding the right home is very important. One must consider the location in relation to not only work and shopping, but also the types of schools that are in the area. Often, this means selecting a home that is not exactly where you want, just so you can make sure your children are at the best school. While these decisions are quite important, equally important is the choice of the mortgage lender.
A mortgage is a type of loan that is used to help make it possible for people to purchase a home, even if they do not have the entire balance up front. Mortgages vary by lender and there are several different options, but the most common is the thirty year fixed rate mortgage. This means the mortgage is for a length of thirty years and the interest rate is fixed, so as long as payments are made on time, it will not change over the course of the loan.
Another popular type of mortgage is the Adjustable Rate Mortgage. Like the fixed rate, the most common length is thirty years. An adjustable rate mortgage has, as is implied by its name, an interest rate that changes over time. Usually they are described as 5 Year ARMs or 2 Year Arms, which describes how often the rate is adjusted. So, for example, in a 5 year ARM, every five years, the interest rate will be adjusted in relation to the current market. It is important to plan for it to always go up, but with the way the current financial market is, many with quality ARMS have actually seen decreases in their interest rates over the last few years.
The main advantage of an ARM is that it has a lower initial interest rate, but it is important to understand the terms of the loan. Some things to watch out for are early pay off penalties and rates that can be adjusted by more than 1% at a time. Adjustable Rate Mortgages have gotten a bad rap, in part because many of those offered during the buildup to the financial meltdown were actually subprime adjustable rate mortgages.
Just like finding the right location is important, it is also very important to find the right mortgage lender. Those with good credit are at a big advantage here, as they will be able to pick and choose which lender they want, with banks and lenders being motivated to get their business. However, getting a mortgage with no-credit or even bad credit is also possible, but it is essential to avoid predatory lenders, who offer subprime mortgages to those who don’t have many options.
The best place to start looking for a loan is your local bank. This is because they already have a working relationship with you and can often provide you an answer one way or the other very quickly. Even if they turn you down, it is still a good idea to find out what types of mortgages they offer and their terms, as well as their interest rates. Most brick and mortar banks will have a very standard mortgage options, so they can be used to compare other offers to.
Once you have an idea of what your bank can offer, it is usually a good idea to speak with a mortgage broker. Mortgage brokers are basically middle-men who usually have a working relationship with several different mortgage banks. They will be able to check their resources and offer you a few different options. However, it is very important to carefully consider their options, because they only get paid if you buy a loan through them, so are motivated to make a sale.
Once you have received a few offers, don’t be in a rush to jump into a loan. Instead, carefully evaluate each mortgage, its terms, and requirements. This way, you can avoid falling into bed with a predatory lender, who offers a subprime mortgage, such as having an early payoff penalty.
Businesses and creditors have for years kept information about the people who use their business, using this information to determine whether to continue offering an individual services. Until the advent of modern technology making it easier to reliably send information across long distances, these records were usually only used internally or in specific locations.
However, beginning in the eighteenth and nineteenth centuries, businesses began sharing these records with each other on a much larger scale, which is the basis for the modern credit report.
As is often the case, with no oversight banks, mortgage lenders, and other creditors were quick to abuse this system. They began storing all sorts of personal information in credit reports, including race, gender, religion, and sexual preference. Worse, the lenders would then use this information to deny or approve a loan.
To help address this problem, the Fair Credit Reporting Act was passed in 1970. Since then, the law has been changed many times, but its premise, to regulate the credit reporting industry, remains the same.
The Fair Credit Reporting Act helps to regulate both credit reporting agencies, as well as who can provide information to these agencies.
There are three main credit reporting agencies, Equifax, TransUnion, and Experian. These agencies compile information about how a person uses their credit lines, including tracking payment history.
As part of the Fair Credit Reporting Act, these agencies are required to ensure that there is a way for consumers to address errors on their credit report and that these errors are removed in a timely manner. They are also not allowed to keep information indefinitely and in most cases can only cover the last 7 years, although bankruptcies can be kept on a credit report for up to 10 years.
Only recently, consumers were given the right to see a copy of their credit report for free and purchase a copy for a fair price.
While a big part of the Fair Credit Reporting Act is aimed at regulating credit reporting agencies, it also deals with who can report information to these agencies and what type of information can be added to a credit report.
As part of the Fair Credit Reporting Act, agencies that report information to credit reporting agencies must:
The Fair Credit Reporting Act also puts limits on who can report information to credit reporting agencies, which is usually limited to banks, credit unions, and other creditors. It also put regulations on how credit reports can be used for background checks by employers.
While the Fair Credit Reporting Act took steps to help make the credit reporting industry more transparent and less discriminatory, it still has a long way to go and it would require a number of other laws to bring the credit industry under better control.
Today, women borrowers are one of the fastest growing demographics in the lending industry, however even just a short while ago, this would have been impossible. This is because until the Civil Rights Movement of the 1960’s, lenders participated in discriminatory lending, discriminating by race and gender. These practices began to change with the passage of several pieces of legislation in the sixties and seventies.
One of the most important pieces of legislation to reduce discriminatory lending practices was the Fair Housing Act of 1968, which led the way for several other laws that would help further reduce discrimination.
The Fair Housing Act of 1968 was passed to prevent mortgage lenders from discriminating against people by their race, gender, religion, or nationality. Today, this seems like common sense, but at the time, creditors would gather a great deal of personal information about prospective borrowers and use this information to decide whether or not to offer them a loan.
Originally, the Fair Housing Act was referred to as the Civil Rights Act of 1968 and came 4 years after the first Civil Rights Act. However, because it addressed housing discrimination, it became known as the Fair Housing Act.
The Fair Housing Act not only prevents discrimination when selling homes, but also in lending, as a it prohibits people from refusing to rent or sell a property based on a persons race, gender, religion, or nationality. It also prevents changing the terms of a loan or rental agreement based on discriminatory factors, using coercion in lending practices, and discrimination in advertising.
While the Fair Housing Act is designed to prevent discrimination, it does allow landlords some rights when selecting a tenant for their rental property. For example, a landlord can discriminate against someone based upon their income, ability to pay rent, job status, or credit history. Landlords are also not required to accept Section 8 Housing Vouchers in all areas.
The main purpose of the Fair Housing Act is to prevent discrimination against prospective buyers and renters, but these groups themselves are allowed to be discriminatory when looking for a home. For example, it is not illegal for a potential buyer to ask their real estate agent to search for homes using a discriminatory basis.
Since the Fair Housing Act prohibited outright discrimination, the lending industry and real estate industry became more subtle in their approach, using redlining and steering to achieve a similar goal. These subtle forms of discrimination took the place of outright discrimination in the real estate and lending industries.
Redlining is the practice of not offering credit to certain areas of a city. This was typically preformed in low income areas or minority areas and would prevent people in these areas from getting a loan. Redlining was so prevalent in the industry that there were even official maps made by banks and other creditors outlining areas that should not receive credit.
Steering is when real estate agents, bankers, and city officials would try to steer minorities and certain social groups to a specific part of the city. These officials would lie or manipulate prospective buyers and steer them into housing projects, creating ghettos and low income housing areas.
Today, other pieces of legislation have been passed to prevent steering and redlining, although the practices still occur.
Discrimination based upon race, gender, religion, and nationality were deep seated and could not be removed with only one law or over night. However, the Fair Housing Act was a step in the right direction to help protect the rights of buyers and renters in the housing market.
It would be followed by a number of pieces of legislation to further protect the rights of minorities.
A Credit Score is a numerical value between 300 and 850 that is used by lenders to determine the risk offering someone a loan. Credit scores are based off of a number of factors, including the number of different lines of credit a person has, their payment history, and how long they have had credit. When applying for a mortgage, credit scores are one factor that are considered by mortgage lenders, so it is important to understand the relationship between credit scores and mortgages.
Credit scores are not exactly new and have been around for many years. The FICO credit score is the most common type used, but there are others as well, specifically those offered by the three credit reporting agencies. However, up until relatively recently, the average consumer was not able to see their credit score. This changed in 2003 with the passage of the Fair Credit Reporting Act, which required credit reporting agencies to provide consumers with their credit score for a reasonable fee.
There are many factors that goes into a credit score and a persons debt level is actually not what the credit score is predominantly based upon. Instead, only about 30% of the credit score is based off of a persons current debt, with more weight being placed upon how the person handles debt, as well as their credit history and payment history.
In times past, getting a home mortgage was a much more personal process. The loan officer took the time to get to know the person and made a subjective decision based upon the information available to them. Today, however, much of this personal touch has been lost, replaced by mathematical formulas that are processed by computers. These formulas take into account the persons credit history, their credit report, and their credit score, determining mathematically the risk of offering the prospective lender a home mortgage.
Since so much of the mortgage approval process has been automated, it is essential to have a good credit report and as high of a credit score as possible. Studies have been shown that the higher a credit score is, the lower the mortgage rate offered will be.
For example, according to myfico.com, in 2007, a person with a credit score between 760 and 850, which is considered to be very good, received an average interest rate of 6.3%. A person with a credit score between 500 and 579, on the other hand, received a interest rate of 9.9%. This shows the importance of having a high credit score before applying for a home mortgage.
Since having a high credit score is such an important factor when applying for a mortgage, it is a good idea to spend time fixing any areas and maintaining a healthy credit score before applying for a mortgage.
One of the most important steps of maintaining a healthy credit score is taking care of any errors on your credit report, which even though they may simply be a mistake, such as a creditor not reporting a payment. Even though the mistake is not your fault, it still affects your credit score the same, so finding and fixing errors on your credit report is essential.
Paying bills on time is also extremely important to help maintain a healthy credit score and is one of the main factors prospective mortgage lenders consider when considering a mortgage application. If you have missed a payment, always make sure all of your payments are up to date before applying for a mortgage or other type of loan.
It is also important to pay down your credit lines based upon the amount owed and interest rates of the credit line. For instance, it is important to pay down those credit lines with higher interest rates sooner, rather than later, which not only helps your credit score, but also helps you save money.
Credit reports are used by prospective lenders to determine if an individual is eligible to receive credit.
Since a persons credit report is one of the first things a creditor will look at, as a borrower it is important to try to fix any errors and clean up your credit report as much as possible before applying for a loan.
Credit reports are a special document that contains information about a persons financial records. It will include information about child support, debt, credit lines, mortgages, and in some cases utilities. This information details how the person has been in regards to using credit and paying it back.
While there is a great deal of personal information in a credit report, there is a lot of things that can not be printed in a credit report. This is as a result of the Fair Credit Reporting Act of 1971, which put an end to some very compromising data collection practices by credit reporting agencies.
For instance, prior to 1971, it was not uncommon for there to be information gleaned from actual surveillance in the credit report. They also often included information about race, religion, sexual preference, and criminal background. Credit reports where then used as an excuse to deny people credit, instead of determining if they were credit worthy.
Today the credit report has had the discriminatory and compromising information that was previously found in credit reports removed. Instead, the credit report is limited to only providing information about the persons finances and current debt load.
When a person misses a payment to a lender, creditor, or certain utility companies, this would be noted on the credit report.
Only debt that is relatively recent is included as well. For example, for bankruptcies, only those in the last 10 years are included in a credit report. Other types of debt, such as debt that has been sent to a collection agency, is only included for 7 years on a credit report.
Credit information is collected by three different credit reporting agencies, Transunion, EquiFax, and Experian, who store all this information and resell it as credit reports. Sometimes when applying for a mortgage, the credit report will be included in the cost of the application, but its cost should not exceed $20.
As a consumer, each credit reporting agency is required to provide one free credit report a year. It is a good idea to not get all three at once, instead spreading them out over the length of the entire year. This way, the credit report can be reviewed and corrected, then another copy can be received, which should reflect the changes. In this manner, it may be possible to not have to pay to receive your own credit report.
It is also possible to pay and receive a credit report whenever needed. However, it should be noted that creditors do look at how often a credit report has been requested and if it has been requested too much, this can count against you.
Credit reports can be viewed by a number of people, including government agencies, employers, insurance companies, and lenders.
It is also possible for many other people, t, such as landlords, to view your credit report, as long as they can provide a real financial reason.