Getting the lowest interest rate loan in the Bay Area part 2- Credit is key

Factors contributing to someone's credit score...
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Timing and locking the lowest interest rate is one part of getting the “Best Deal”. See article, locking the lowest interest rate on your refinance.  An article I found details how credit plays such an important role to achieving the lowest interest rate on your purchase OR refinance of your home. If you have questions on how to improve credit or capture the best interest rate please feel free to call me at 925-708-5400 or email me here for a free analysis or free pre approval for you home purchase.

In tough times, how to score a better mortgage deal

By Kenneth R. Harney

Saturday, July 24, 2010; E01

Call it the great real estate disconnect of 2010: Mortgage rates have been at half-century lows and home prices have stabilized, but applications for mortgages have declined most weeks during the past three months, as measured by the Mortgage Bankers Association.

What’s going on here? Shouldn’t 30-year fixed-rate loans well below 5 percent be flying off the shelf? Economists say part of the reason is the expiration of the federal home-buyer tax credits, which encouraged thousands of buyers to accelerate their transactions into the early spring months to qualify for the April 30 contract deadline.

But other key factors are at work: More stringent underwriting standards imposed by private lenders, declining consumer credit scores in the wake of the recession, and rule changes by Fannie Mae, Freddie Mac and the Federal Housing Administration have combined to make qualifying for a new mortgage more challenging than it has been in years.

Take credit scores. Although most lenders have raised the bar on minimally acceptable scores, Fair Isaac, creator of the widely used FICO score, says there has been a deterioration in millions of Americans’ scores during the past two years. More than 25 percent of consumers who have active credit files — roughly 43 million people — have FICO scores of 599 and below. On Fair Isaac’s scale, which runs from 300 (highest risk) to 850 (lowest risk), a 599 score is considered unacceptable by most lenders.

In fact, since the housing boom went bust, lenders prefer to see scores well into the 700s. Fannie Mae, for instance, gives its best combinations of rates and fees to applicants with 740 FICOs or higher.

How can buyers deal with the tougher rules on such things as minimum scores to debt-to-income ratios? Be aware that there are workarounds and creative solutions to some of the roadblocks. Say your credit scores appear too low to qualify for the mortgage you need to buy a house. Ignore the online and junk-mail “credit repair” come-ons that promise miraculous FICO score improvements overnight. They are often rip-offs and might not even be legal in some instances.

However, an experienced mortgage broker or retail loan officer can get your credit file into a “rapid rescoring” program that might get you the legitimate lift you need to qualify. Rapid rescorings performed by independent credit-reporting agencies — most of them members of the National Credit Reporting Association — use procedures approved by the three national credit bureaus to make direct changes to the information contained in credit files.

If there are documented errors in the file, or omissions that are dragging down your scores behind your back, the rescorers connect you, your creditors and the national bureaus — Equifax, Experian and TransUnion — to get the problems fixed. In some cases, rescorers can spot steps you can take, such as cutting your utilization percentage on a particular account, that will boost your score immediately.

Marty Flynn, president of Credit Communications in San Ramon, Calif., a credit reporting firm, says most rescorings take three to five days and cost an average of $30 per “tradeline” or credit account per borrower. A typical rescoring costs from $90 to $200. Although extensive rescorings can push FICOs up dramatically, Flynn said the average increase is more like 25 to 32 points. If you’ve been an irresponsible deadbeat, of course, rescoring your files won’t help much or at all.

Dale Di Gennaro, president of Custom Lending Group, a mortgage brokerage in Napa, Calif., says he uses rapid rescorings to help clients raise their scores enough “to get them into the loan program that’s best for them.” In one recent case, he said, home buyers whose scores had been in the mid-600s boosted them into the 700s when rescorers helped eliminate a late payment dispute on their three bureau files.

Steve Stamets, a loan officer with Union Mortgage Group in Rockville, said rapid rescoring can rack up transaction costs — and even pinch loan officers’ revenue — when an applicant’s scores are being depressed by issues in multiple accounts. One recent applicant had problems with three separate credit tradelines, throwing the mortgage application into jeopardy. Straightening them out cost $270.

“We got [the client] above the 620 FICO he needed” to be approved for the mortgage, Stamets said, “but believe me, it took some work.”

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