Wednesday, September 24, 2014

Credit Scores - Consumer Reports versus Mortgage Reports

Below is a great article published on the KCM Crew blog about credit scores and how consumer reports show different credit scores than mortgage reports.  We see this very often: a buyer just looked up their credit score online before applying for a mortgage thinking they are in good-standing and then when we pull their credit, it is much lower than their consumer report.  This can be very frustrating and misleading for the borrower but as a lender, we have to use the mortgage credit score report. 

What You Don't Know About Your Credit Score... Could Cost You!

What is a FICO Score?

In 1958, Bill Fair and Earl Isaac, a mathematician and engineer, formed a company in San Rafael, California. They created tools to help risk managers make a better decision when taking financial risk. Today, 90 percent of all lenders use the FICO score, first created in 1989 by Fair Isaac, and it’s the only score Fannie Mae and Freddie Mac, the Federal Housing Agency and Veterans Affairs will accept in underwriting loans they guarantee.

What is a Consumer Score?

The three credit bureaus, in their understanding of the credit scoring model created by FICO, decided to create their own scoring models, and in 2004 – 2006 they unveiled the “consumer” scores: Plus Score, Trans Risk Score, Equifax Credit Score, and Vantage Score. However, these are not genuine FICO scores, and mortgage lenders don’t use them. Consider this comparison: Would you buy a watch that gives the approximate time of day?

The three credit bureaus work with major financial institutions, professional organizations, comparison sites, personal finance businesses, clubs such as Costco, AAA, Sam’s Club, and many data-mining brokers to bombard consumers in the race of the free credit score mania, all with the enticement of a “consumer” score that is not used by lenders, in hopes of obtaining subscriptions or fees from consumers. Fees that are totally unnecessary!

Know Your Score

Gaining access to one’s own credit report and credit score prior to loan approval with no strings attached could be helpful, and at all times beneficial. With little effort, inaccuracy of information can be instantly corrected at the credit bureau level, and with a few simple steps, credit scores could be enhanced. For example, paying down revolving account balances before a creditor’s statement-ending date (the creditor later updates account information with the credit bureaus), thus reducing revolving account balances at a particular point in time, will positively add more points to a score. It’s priceless.

More Information

Consumers have a legal right to access their annual credit report at no charge once a year from annualcreditreport.com, a site sponsored by the three major credit bureaus: Experian, Equifax and TransUnion.

These reports provide all the basic consumer data, but do not reveal a credit score. If you have a need for the FICO credit score that is actually used by mortgage lenders, myfico.com is the website to visit. For $19.95 per bureau, consumers can purchase a customized credit report with a genuine FICO score.

Additional websites to visit: the Federal Trade Commission (ftc.gov) and the Consumer Financial Protection Bureau (cfpb.gov) for true answers to questions about any financial concepts, financial products, dispute and complaint submissions, and much more.

Tuesday, September 9, 2014

Largest Influence on where Portland Metro Citizens Choose to Live

In a recent study by Davis Hibbitts and Midghall Inc. found that aside from price, safety and the neighborhood characteristics of the house have the largest influence on where respondents choose to live. Here is what they found:
  • 44% of respondents rank housing price as their top influencer when choosing a home
  • 19% said safety of the neighborhood
  • 19% said characteristics of the house
You can view the report at: www.dhmresearch.com

Friday, September 5, 2014

Rent vs Own

The KCM Crew recently published on their blog a great article about renting versus owning.  It talks about how many renters don't know their options when it comes to purchasing a house and that they would be better off financially if they bought a home instead of rented. If you don't know, it won't hurt to ask a professional.  Here is the article:

Don't Get Caught in the "Renter's Trap"

In a recent press release, Zillow stated that the affordability of the nation’s rental inventory is currently much worse than affordability of the country’s home sale inventory. The release revealed two things:
  1. Nationally, renters signing a lease at the end of the second quarter paid 29.5% of their income to rent
  2. U.S. home buyers at the end of the second quarter could expect to pay 15.3% of their incomes to a mortgage on the typical home
Furthermore, renters pay more than the average of 24.9% that was paid in the pre-bubble period while buyers actually pay far less than the 22.1% share homeowners devoted to mortgages in the pre-bubble days.

Don’t Become Trapped

If you are currently renting you could get caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment. Zillow Chief Economist Dr. Stan Humphries explains:
"The affordability of for-sale homes remains strong, which is encouraging for those buyers that can save for a down payment and capitalize on low mortgage interest rates… As rents keep rising, along with interest rates and home values, saving for a down payment and attaining homeownership becomes that much more difficult for millions of current renters.”

Know Your Options

Perhaps you already have saved enough to buy your first home. HousingWire recently reported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.
It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
Freddie Mac came out with comments on this exact issue:
  1. A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
  2. Freddie Mac's purchase of mortgages with down payments under 10 percent more than quadrupled between 2009 and 2013.
  3. More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 percent or less.

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.


Also, here is an infographic they posted today about the cost of renting versus buying.

Tuesday, September 2, 2014

Hottest Markets in 2Q 2014 - Portland Area

Here is a breakdown of the hottest markets in the Portland area for the second quarter in 2014.  This is typically seen as the busy season for homebuyers because of the nice summer weather and school is out for those who have kids.  The list was provided by RMLS and is broken down by home sales in a particular zip code.