Starting soon, the Federal Reserve will let you know beforehand when they believe interest rates will rise.

From here forward, each member of the Federal Open Market Committee will provide an interest rate forecast for the fourth quarter of the year and for the next few calendar years, when the Federal Reserve publishes its economic projections.

The FOMC releases the projections four times a year. With the next meeting scheduled for January 24th through 25th, we should soon be hearing directly from the Federal Reserve on certain key interest rates.

In addition, each Federal Reserve official will also publish when he or she expects the first increase in the federal funds rate, according to minutes from the FOMC December meeting. The Federal Reserve has kept the rate near zero since December 2008.

There is no doubt that rates will rise at some point, but if the information is accurate, it will be nice to know before these rates actually rise, so that consumers can react accordingly.

While short-term federal funds rate are not directly tied to mortgage rates, they do influence mortgage rates, as do many other actions of the Federal Reserve.

When the Federal Reserve decides to raise its target for the federal funds rate, investors normally view that as an indication that the economy is strengthening and that may lead to higher mortgage rates.

Though, in the short term we do not see a major upward move on the horizon for interest rates.

As always we will provide updates as these forecasts are provided and shape the mortgage marketplace.

When it comes to obtaining a mortgage whether you are purchasing or refinancing, fixing your credit score before you apply for a mortgage could literally save more than $100,000 over the course of your loan.

For all mortgage transactions, you will need to have your credit score pulled for qualification purposes and the difference between a high and a low score can make a big difference in the long term and short term.

In short, a credit score is a computer-generated number that ideally objectively evaluates all of the information in your credit report. The most used credit score in the US is the FICO score. It is a number between 300 and 850 determined with a formula developed by the Fair Isaac Corporation.

The whole idea behind credit scores is that people with higher credit scores are thought to be less likely to default on their loans and therefore are offered lower interest rates and a wider variety of loans from lenders.
Each person actually has three different FICO credit scores as the three national credit bureaus (Experian, Equifax, and TransUnion) all use their own databases to determine your score.

When it comes a national average, the median score is 723, but in the eyes of lenders, there really isn’t much difference between a 740 score and an 850. So, as a potential mortgage borrower, as long as you cross that 740 threshold, you are in an excellent position.

Of course many types of financing, will allow for much lower scores and still excellent interest rates, most conventional loan programs will now require a 740 fico score for the best interest rates.

The score is determined from your credit report. Some of the factors that go into that report are as follows:
Your payment history: have you been paying your bills on time?

The amount you owe: how much overall debt do you have?

The length of your credit history: how long have you been borrowing money?

New credit: Have you opened any new accounts lately?

Types of credit used: are you using credit in different ways?
Car loans, house loans, student loans, etc.

A credit score isn’t everything. Other things considered on your loan application include your income, your employment history, the location of the property, and how much cash you are putting down. Still, lenders need some kind of standard, and the credit score is what they use, so it makes sense to have the best credit score possible. While it might not be an accurate assessment of how you will do with your loan, it will affect how much you pay for your loan.

For example, on a 30 year conventional loan for $300,000 dollars, someone with an upper level 760-850 FICO score will pay $1,556 per month on an APR of 4.698%. A borrower at the lower end with a 620-639 score will pay $1,854 on 6.287%. Add that up over the 30 year span of the loan, and you’ll get a difference of a whopping $107,208 dollars.

If you are planning on looking for a home or getting a mortgage, you should check your credit at least 90 days before you apply. This will give you ample time to clear your record and hopefully improve your score. Even if you aren’t going to be looking anytime soon, it makes sense to get your credit score checked now.

As a result of the FACT Act (Fair and Accurate Credit Transactions Act), each US citizen is allowed one free credit check from the three main credit agencies per year. The site http://annualcreditreport.com is the only one authorized under federal law to do this for you.

The report will give you a chance to make sure that your information is correct and it will let you see any red flags on your accounts. If anything is incorrect, you can ask in writing that the information be corrected or removed from your report. The different bureaus are required by law to investigate your complaint within thirty days.

Remember, your credit report is not the same thing as your FICO score, you can pay to have this number as well or have a mortgage professional obtain it with your permission, but more than anything it is important to know what is on your report.

Once you have looked at your credit score and fixed what you can, move forward by paying your bills on time, keeping account balances low (below 50% of their limits), and only taking out new credit when you need it. Also when you pay off your credit card balances, don’t close unused accounts, and don’t open new accounts.

In the end, your credit score plays a large part in how much you pay for your mortgage. The bottom line is that even though your credit score seems like something you have no control over, there’s actually a lot that you can do to improve it. And the time it takes to fix things is minimal compared to the potential savings over the span of your loan.

Lending rules have become stricter in the past few years when financing condos with FHA, VA and even Conventional loans.  You can go on the FHA website  https://entp.hud.gov/idapp/html/condlook.cfm  to search for FHA approved condos in a particular zipcode.  You can do the same for VA approved condos at https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch Even if the complex is FHA or VA approved on the websites, lenders still need to verify that less than 50% of owners are investors and the tougher requirement is that no more than 15% of the HOA dues can be more than 30 days delinquent.  The investor % and HOA delinquency % requirements apply to FHA, VA, and Conventional loans and can keep even highly qualified buyers from obtaining a loan on a condo

Many lenders increased their minimum credit score requirement for FHA loans from 620 to 640 this week. Bank of America was the first to announce the change and then a great number of lenders followed over the next few days. This knee jerk reaction is very common in the lending industry since BofA is the largest buyer of loans on the secondary market. It is important know that FHA did not raise their minimum credit score requirement and many lenders including Smart Financial are still able to close FHA loans with a 620 credit score.

For More information contact Ryan Halldorson,

Smart Financial Mortgage, Phone: 602.793.7204

Borrowers are now able to obtain a 90% loan when they are purchasing a 2nd/Vacation Home in Arizona. This loan used to require a 20% down payment because there was no private mortgage insurance available for 2nd homes in Arizona. Borrowers are required to have a 720 fico score and their current primary residence would need to be in different city/state. Investment properties still require a minimum of a 20% down payment. Interest Rates on 2nd/Vacation Homes are similar to primary residence rates.

For More information contact Ryan Halldorson, Smart Financial Mortgage, Phone: 602.793.7204

Missing mortgage payments will hurt your credit score, that is a given. However, as the number of short sales and foreclosures has increased over the past few years, the question has been just how much missing payments on your mortgage affects your credit score.

In a recent report from Fair Isaac, the company that developed FICO scores, estimates were revealed for some of the point score declines following various mortgage delinquency scenarios.

Here are the average hit your credit will take in each of these scenarios:
30 days late: 40 – 110 points
90 days late: 70 – 135 points
Foreclosure, Short Sale or Deed-In-Lieu of Foreclosure: 85 – 160
Bankruptcy: 130 – 240

The reports indicate that even one missed mortgage payment can have a significant impact on the credit score of a borrower, but the real tipping point comes when accounts get to 90 days or later past due, as statistics show that this is when accounts are least likely to ever be paid current again.

Of course, other factors come into play as well. As someone with limited credit will be hurt more, then someone with a large amount of accounts and a good long standing history may be affected differently as well. In addition, someone with a less than perfect credit history and a lower score may also have less room to drop then a person with a higher credit score as well.

In addition, in a note interesting to the current state of the market, it was revealed that even if a borrower were able to walk away from their home with a short sale or deed in lieu of foreclosure and not necessarily miss many payments, their credit score could still be hurt significantly. That is because if it is reported that the account was settled for less than the full balance, a serious delinquency is calculated into the person’s credit score, regardless of how many payments they missed.

Of course, the absolute biggest effect on credit score occurs in cases of bankruptcy as the credit bureaus treat this with the biggest impact on credit scores.

While none of this news is information that may come as a major surprise, this is the first release of estimates of the affects of foreclosure and short sales on borrowers credit reports. For those that unfortunately have to deal with these hardships it will definitely take a major toll in the short term on credit. However, like with most things, with the proper management, you credit score can rebound with solid financial planning and responsibility going forward. After a hardship home ownership can occur within just a few short years with the right planning.

Here is a very useful video on How to Strengthen Your Credit Score

Interest rates have remained low even after the Fed ended its Mortgage Backed Securities (referred to as MBS) purchase program on March 31, 2010. In a knee jerk reaction, interest rates initially increased by roughly .25% in early April but they have now settled back down to the nice, low levels of the past several months. The worldwide demand for MBS has remained strong even without the Fed purchases which have kept interest rates low. The massive debt problems in Greece and several other European nations have caused many worldwide investors to move their bond money over to US MBS which they still view as a safe haven. Interest rates will inevitably rise back to “normal” levels in the not so distant future but for now we continue to enjoy some of the lowest rates in history.

Housing and Urban Development Secretary Shaun Donovan spoke in Washington on changes on the horizon for FHA Home Loans, which HUD has authority over. While no official changes have been announced, Mr. Donovan’s testimony in front of the House Financial Services Committee indicated that the cost for borrowers will increase with borrowers having to put up more cash in some situations.

“We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan, to make sure that FHA borrowers have more ‘skin in the game,’” Housing and Urban Development Secretary Shaun Donovan said.
“There are several ways to accomplish this, and so we are currently analyzing various options to determine which is the most effective and consistent with our mission,” he said.

Among the options the FHA is considering is cutting the amount of home seller concessions a buyer can receive from 6 percent currently allowed to 3 percent of the purchase price. The minimum credit scores required for borrowers may also be raised, and the guarantee fees charged to lenders may increase, Donovan said.

“We expect to provide detail and public guidance for these changes by the end of January,” Donovan said.
One of the options not mentioned by Donovan initially was raising the down payment required on FHA loans above the 3.5% minimum down payment currently required for FHA home loans. However, in recent statements, Donovan has now come out and supported a potential increase to a 5% down payment on FHA loans.

Still it seems more likely that the FHA will raise the up-front insurance premiums of 1.75 percent that it charges lenders to guarantee the loans. In fact, the agency is also seeking permission from Congress to increase its annual insurance rates as well, which will raise mortgage costs for consumers, Donovan said.

Thus, it appears that many changes are on the horizon for FHA home loans over the next few months. While as we noted, nothing is set in stone yet it does appear that FHA home loans may be getting more expensive for borrowers in the coming year, while not requiring additional down payment. As more information becomes available we will provide information and analysis.

Updated information on tax credit extension until June 30, 2010

It is now official – the first time buyer tax credit extension has been signed into law. The $8000 First Time HomeBuyer Tax Credit has been extended for buyers to secure an accepted purchase contract by April 30, 2010 and then close on that contract by June 30, 2010. The only change is that the income levels have been raised to $125k/year for singles and $225k/year for married and the maximum purchase is now $800k. They also added a $6500 tax credit for “move-up buyers” that have owned their current primary residence they are vacating for 5+ years and are buying a new primary residence. The same purchase dates and income levels apply to the “move-up buyer.” There will likely be a lot of “what if’s” for qualifying for the move-up buyer tax credit. The initial sanity check on the move-up buyer will be that their tax returns have shown their current primary residence address for the past 5 years. The tax credit is an IRS tax related issue so a buyer would likely want to consult a tax advisor with specific scenario questions on whether their situation would qualify. Loan underwriting guidelines still state that a move-up buyer needs to qualify with both mortgage payments unless the primary residence that the borrower is vacating has 25%/30% (FHA/Conventional) equity along with a rental contract and proof of security deposit.

For the most part, a 620 fico score is now required for FHA, VA and Conventional loans. If a borrower is trying to raise their score to this level, here are some pointers. It is very difficult to erase or change the old, bad, credit history unless it is false. Therefore, they need to focus and creating a positive credit history going forward. Ideally they should have 2 or 3 open, active, on-time lines of credit that report to the credit bureaus (cars, credit cards, student loans). The best and safest way to do this is by opening a secured credit card. You send the creditor money and then you can spend that money with the credit card (like a debit card except that they report to the 3 credit bureaus as a perfectly paid credit card).There are several “no credit check, automatic approval” secured credit cards that can be found on www.bankrate.com (then click Credit Card tab, then “Select by credit type”, then select “Bad Credit”).

Having a family member add them as an authorized user would also work. If they already have credit, they should try to get their balance on the credit card under 35% of the max credit limit. Once they start getting ready to apply for their mortgage they should not have their credit run for 90 days prior to applying for the mortgage.

The best way to check your credit and dispute inaccuracies is by ordering your free credit report (www.annualcreditreport.com or 877.322.8228) and use the dispute form they give you. This will not count as an inquiry on your credit and you are entitled to one report per credit bureau, per year. The report is free but you will have to pay to see your scores.