The Unexpected Way Bad Credit Can Make Your Mortgage More Expensive

posted on 02 Aug 2015 10:29 by swankyvagrant8044
Conventional loans are crme de la crme of the mortgage market. This loan type offers the best possible terms and fees as well as relatively sustainable long-term affordability. However, those who come to the table with little equity and lower credit scores may find that a conventional loan costs them more than other alternatives. Here's how to know if you need to explore your options.

A conventional loan is a mortgage originated by banks, lenders, and brokers across the country and sold on the primary mortgage market to Fannie Mae and Freddie Mac. This type of loan offers the best terms and rates due to its mass appeal and large-scale availability. However, this mortgage type also contains what's known in banking as risk-based pricing -- a premium commensurate with the risk of the consumer's financial picture.

A conventional mortgage scenario

With a conventional mortgage loan, a borrower's credit score is the biggest driver of cost.

If your credit score is between 620-679, you can expect to see higher costs when:

You're refinancing to reduce your monthly payment.

Your loan size is more than $417,000 (or whatever your county's conforming loan limit is).

You have less than 20% in equity/down payment.

Other factors that affect the price and rate of a mortgage include: occupancy, property type, loan-to-value, and loan program.

So let's say your home-buying scenario looks like this:

Primary home

Single-family residence

Conventional loan

5% down payment

630 credit score

$417,000 loan size

Due to the lower credit score, it would not be uncommon to see an interest rate on this type of scenario approximately 0.375% higher than the average 30-year primary mortgage rate.

Also, when there is less than 20% equity or down payment (so 80% or more of the home price is being financed), the lender requires the borrower to pay a mortgage insurance premium of approximately 110% of the loan amount on an annualized basis. The borrower's credit score also factors into the mortgage insurance premium amount for a conventional loan -- the lower your score, the more you'll pay in mortgage insurance.

For someone with a 630 credit score in this case, that might be $4,587 per year, which would be $382 per month in mortgage insurance.

However, with a 700 credit score, the interest rate could be 0.25% higher than the primary market rate and the mortgage insurance premium would be approximately $3,127 per year -- or $260 per month.

This is why it pays to have a good credit score when applying for a conventional loan. So if you expect to buy a home in the next year, now is the time to check your credit scores and credit reports and get yourself on a plan to build your credit. A lender can give you guidance on the best steps to take, too. (You can get your free credit report summary on, updated every month so you can track your progress.)

How to reduce your mortgage costs

Often, you can raise your credit score simply by paying down credit card debt ( this calculator can show you how long it would take to pay off your credit card debt) -- though of course it all depends on your individual credit history. Ask your mortgage professional if they offer a complimentary credit analysis with their credit provider. Most brokers and direct lenders offer this service. By having the mortgage company run this analysis, you can see how much more your credit score could increase by taking specific actions. Generally, a good rule of financial thumb is you keep your credit cards to no more than 30% of the credit limits per credit card.

You may also want to consider putting more money down when buying a home to help offset a lower credit score.

Or, you may want to change gears and go with a different mortgage loan program. An FHA loan could be another viable route in keeping monthly mortgage costs affordable.

A loan insured by the Federal Housing Administration (FHA) used to be considered the most expensive mortgage available. That dynamic changed in early 2015, when the FHA announced it was reducing its annual mortgage insurance premiums to a fixed 0.80 premium, regardless of loan size or credit score.

Comparing an FHA loan to our conventional mortgage loan scenario above, the FHA does not discriminate on credit score the way a conventional loan does and the mortgage insurance premium on FHA loans is constant. There is no sliding scale based upon credit score like there is on the conventional side. The FHA loan of $417,000 would generate a monthly PMI payment at $278 per month, a whopping $100 dollars per month lower than the conventional loan for the lower credit score.

Granted, an FHA loan does charge an upfront mortgage insurance premium of 1.75% usually financed in the loan, but the effect of the payment would only change by approximately $30 per month, meaning the FHA loan is really $308 month, making the FHA loan a lower cost monthly alternative for the lower credit score scenario.

Other FHA loan facts:

FHA is not limited to first-time home buyers -- it's open to everyone.

FHA loans can be used to purchase a home or refinance a home.

If you are in the market for a mortgage and are trying to refinance or purchase a home, consider working with your loan officer to qualify on as many loan programs as possible upfront. Taking this approach can also allow you cherry-pick which loan is most suitable for you considering your payment, cash flow, and home-equity objectives within your budget.


This article was written by Scott Sheldon and originally published on

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Check Your Credit Before Buying a Home

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How To Check Mortgage Loans And Lenders

posted on 05 Jul 2015 10:15 by swankyvagrant8044
In today\'s ultra competitive mortgage market, property investors are increasingly turning to private mortgage lenders to provide them using the finance solutions they must conduct their business. Mortgages come in different packages with different rates on mortgages rising and different tenure of repayment. Mortgages are available in different packages with various rates on mortgages rising and different tenure of repayment. They do not have access to any issues and they just wants to produce profit. Mortgage Loans: Why Price Comparisons is ImportantComparing mortgage loans and lenders can be a real hassle.

Chose the cheapest Fixed rate Mortgage in order to save some money. In that report they says almost around 8 million holders of the mortgages who had got their deals around the fixed rates have arrived at a conclusion now and also the deals that are running in the present scenario is running based around the standard variable rates (SVR) of the lenders. It may be surprising to understand about the.

Refinancing. The amount which you now owe your credit card companies as well as other lenders not only affects your credit score, but additionally affects whether you qualify for any mortgage. Popularly referred to as 5/25 and 7/23 5/25 includes a 5 year fixed mortgage rates of interest for that initial years and then it steps up to a one year adjustable mortgage rate or a twenty five years fixed mortgage rate. 9 percent through the end of the season 2012 and from the ending of the year of 2014 this rate would go up by 2 percent. With shiny credit score, you\'ll easily find willing lenders and low rates.

These are some of the ways. Being rejected to get a mortgage loan isn\'t the conclusion of the world. Your monthly repayments will include section of original capital too as monthly interest. For those that joined before 1980 the eligibility is 180 times of active service and or those that joined after 1980 will need to have served for 2 yrs to be eligible to get a VA loan.

Contractors can result in the mortgage process easy when they be aware of direction. For the duration of this period due to the cheaper rates of interest numerous subprime mortgage loan providers were a lot more lax with their procedures. If the amount is low then the lender usually discards such loans. A history of paying your bills late can lower your score and negatively impact your ability to qualify for a mortgage as well as other loans.

There are expectations inside the market that the rate of the Banks may go up by 0. Private mortgage lenders possess the flexibility that traditional lenders do not - but there will also be a great many other explanations why private mortgage lenders are fast becoming the choice way to obtain property finance for real estate investors. This way you will have necessary money to give the maximum amount upfront.

However sometimes the borrower is economically sound and also the problem is merely he has died. This is definitely an estimate and real fees could be higher. For those that joined before 1980 the eligibility is 180 times of active service and or people who joined after 1980 should have served for a couple of years to be eligible for any VA loan.

Auto Repair: Save $300 by Avoiding Dealers

posted on 10 Jun 2015 17:17 by swankyvagrant8044
Last Updated May 25, 2010 12:43 PM EDT

Sooner or later, all car buyers face the big question: Should I go to the dealer or an independent repair shop to get work done? By avoiding dealerships in favor of independents when you have work not covered by the warranty, you can save an average of $300 a year, according to a new study by

AutoMD, which covers all car-repair topics, collected its data from the Bureau of Transportation Statistics, the Federal Highway Administration and the Aftermarket Industry Association (the trade group for parts makers and repair shops). Car owners who go to dealers for repairs spend an average of $1,209 a year vs. $903 for those who use independent shops, the study concluded. (For the cost difference on brake jobs, transmission repairs and three other common repairs, see below.)

The biggest cost differentials are often on both the simplest and most complicated jobs. "Routine maintenance, like oil changes, will be much cheaper at independents or chain shops unless the dealer is running a promotional special," says AutoMD president Shane Evangelist. Since all cars need oil changes, dealers use them as a profit center.

Additionally, much of the cost differential is due to higher labor rates at the dealers' service departments. So the longer the job takes--as in the transmission repair below-- the bigger the cost advantage at an independent, says Evangelist. The study points out that, contrary to popular belief, having maintenance or repairs done at a place other than the dealer doesn't affect your warranty coverage.

Dealers do give you price breaks in some situations, though. When a repair is clearly covered by a warranty or the subject of a recall, it will be free at the dealership. And for cars less than three years old, when you need a diagnosis of a problem, only the dealership may have the tools. Manufacturers, with a vested interest in the dealerships, sell to them exclusively the equipment and computer codes to diagnose the newest cars.

As a car ages, independents are able to get more of the necessary equipment and codes. Proposed legislation called the Right to Repair Act would force manufacturers to give independent shops the computer codes and other tools for such new-car diagnosis, but so far it has not moved in Congress.

To avoid overpaying for repairs and maintenance-or being scammed into repairs you don't need-take these steps:

Find a reliable repair shop. One of the most stringent certification programs for independent shops is run by the American Automobile Association (AAA). To get on the AAA-approved list, says Mike Calkins, manager of the program, a shop must pass AAA on-site inspections and demonstrate financial soundness and necessary insurance. In addition, AAA wants to see that individual mechanics have certification in their specialties from the National Institute for Automotive Service Excellence. AAA also conducts a consumer satisfaction survey of shops under consideration and requires a 90% positive rating before putting them on the approved list. The AAA site will let you find certified shops in your zip code.

Have some idea of your problem. You're less likely to pay for unneeded repairs if you are fairly certain what's wrong before you bring your car in. The AutoMD site has a list of symptoms to check and then possible reasons for them. A competing service, sells a $99 device that reads the computers in your car and diagnoses any problems. (MoneyWatch will soon test the device; stay tuned.)

Get an idea of repair cost. The AutoMD and CarMD sites will give you an estimate. While it's only an estimate, having the number may help you negotiate with an independent shop over the cost of the repair. Dealerships usually are inflexible on their prices unless the manufacturer is paying, such as in warranty and recall situations.

Here is a list of five jobs with the AutoMD estimates of the average independent shop cost, dealer cost, and savings

Replace an alternator: Independent $297; Dealer $371; Savings: $74

Front disc brakes (pad and rotors): Independent $264; Dealer $330; Savings: $66

Transmission repair: Independent $3,230; Dealer $4,037; Savings: $807

Replace window motor: Independent $161; Dealer $201; Savings: $40

Replace cabin air filter: Independent $90; Dealer $112; Savings: $22

Photo courtesy of mlangsam24

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