Consumer Reporting Agencies (CRAs) gather and sell the information that appears on your credit report. A credit bureau is the most common type of CRA. These CRAs have responsibilities under the Fair Credit Reporting Act (FCRA). The FCRA was also designed to expand your rights and to promote accuracy and privacy of the information on your credit report.
Who else can obtain a copy of my credit report?
Only individuals and companies with business needs as recognized by the FCRA may obtain a copy of your credit report. The most common business reasons a company will obtain your credit report is when you apply for credit, employment, or insurance. No employer can obtain a copy of your credit report without your prior written consent. Medical information cannot be provided to another party without your permission. Some creditors and insurers may use limited file information as marketing tools for their unsolicited credit and insurance offers. All unsolicited offers must include a toll-free phone number for you to call to remove your name and address from their lists. An additional step you can take to keep your name off lists permanently is to complete a CRA form prepared for this purpose.
When does it make sense to refinance?
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation:
- Calculate the total cost of the refinance
- Calculate the monthly savings
- Divide the total cost of the refinance
(#1) by the monthly savings (#2). This is the “break even” time. If you own the house longer than this, you will save money by refinancing. Since refinancing is a complex topic, consult a mortgage professional.
What’s in a mortgage payment?
The principal is the amount of money you borrowed. Each month when you make your mortgage payment, you are paying back a small portion of the principal. The longer the payments are amortized (over 30 years for example), the more the payments go to reduce the principal you owe; over time, interest will become a smaller part of your monthly payment. In the beginning, most of the mortgage payments made to the lender will be interest payments.
Interest is the cost of borrowing money, usually expressed as an annual percentage of the loan amount – for example 8.125%, 9.000%, etc. Lenders will offer different rates depending on the type of loan program offered.
These are taxes paid to local governments, usually charged as a percentage of the property value. Your lender collects the taxes through your monthly payments. The amount of tax will vary depending on the location of the home.
This is a contract that protects you from any financial losses on your property that might result from fire, flood, or any other “hazards.”
This is an insurance policy that pays mortgage lenders for part of their financial losses if a borrower fails to fully repay a loan. Mortgage insurance makes it possible to buy a home with a low down payment.
What types of insurance do I need to know about?
PMI, Title Insurance and Hazard Insurance
Private Mortgage Insurance (PMI)
A lender will require you to purchase mortgage insurance if you make a down payment of less than 20% of the market value of the home. There are different types of insurance available which often affect the type of mortgage loans you obtain.
Title insurance will be included in the closing costs to insure that no other party can claim title to your property.
This insurance is a contract that protects you from any financial losses on your property that might result because of fire, flood, or any other “hazards.”
What is the difference between pre-approval and pre-qualification?
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.
What is a rate lock?
Rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.
What is a credit score?
A credit score is a number based on a calculation by a mathematical model using pre-determined parameters to evaluate your credit worthiness. Credit scoring is based on your current and past credit history. Your credit score is a summary of your credit history, your current credit, and even a prediction of your future credit performance. The three major credit bureaus worked with Fair Isaac Company (FICO) to develop credit scoring models. Each credit bureau can calculate your credit score based on the information in that bureau’s credit files. This credit score is then used by the lender/broker in determining whether you qualify for the loan for which you are applying.
What is a credit report?
A credit report is a file that contains information about how you pay your bills, where you work and live, and any information that is of public record, i.e., bankruptcies, judgments, etc. Lenders can order a credit report using your name, address, and social security number to verify that your credit history is satisfactory for the loan for which you are applying.
What can I do if I find incorrect information on my credit report?
If you find an inaccuracy on your credit report, you should definitely correct it. It is up to you to begin the process of correcting your report. Luckily, the Consumer Reporting Agency (CRA) and the information provider have responsibilities under the Fair Credit Reporting Act (FCRA).
You must contact the information provider and all three of the credit bureaus to protect your rights under the FCRA. If you are applying for a mortgage at this time, you should also make your lender/broker aware of any mistakes on your credit report. The best way to dispute inaccurate information is to contact, in writing, each CRA. The CRAs are required to investigate the items you are questioning unless they believe your dispute to be frivolous. This must usually be done within 30 days.
Their investigation includes forwarding your dispute to the information provider in question. The information provider must then review all relevant information and report their findings to all CRAs. If the information on your credit report was incorrect, your file must be corrected. You will receive the written results and a copy of your credit report from the CRA if the dispute results in a change. At the same time you contact each CRA in writing, you should also contact the information provider directly.
What are closing costs?
Once a loan has been approved by the lender, the buyer is asked to go to settlement to sign papers, and the loan process is complete! There are certain costs involved in closing a loan which usually amount to about 2%-6% of your mortgage loan. For example, if your mortgage loan is $85,000, your closing costs might range from $1700 to $5100. These closing costs will be in addition to your down payment on the house.
A title is the document that shows who owns a property. It is necessary for an attorney to examine a title to make sure there are no problems that would prevent you from having “clear” (legal) title. It is also necessary to get title insurance in case someone else should try to claim title to your property. Fees for title examination and title insurance will be included in the closing costs.
Recording and Transfer Charges
A record of your home purchase will be on file with your local government , and there is a small fee to cover the cost of paperwork.
Your lender will charge a fee to cover the administrative cost of processing your loan. This fee is usually a small percentage of the loan amount.
Items Paid in Advance (Prepaid Escrows)
Most lenders require you to pay for some items that will be due after closing. These pre-paid items usually include first year insurance premiums (for hazard and mortgage insurance) and real estate taxes.
How does credit scoring affect me?
One of the main consumer benefits of credit scoring is the reduction in time it takes to obtain a lending decision. If your credit score fits into a lender’s requirements, your loan decision will take less time because of computerized underwriting systems. Another benefit involves the anonymity of the credit score. The credit score DOES NOT include factors like race, martial status, place of residence, or any other possible discriminatory areas. The credit score is solely based on your past and present credit performance. The only disadvantage of credit scoring is the fact that scores are calculated using information provided by a credit bureau. If any of the information reported to a credit bureau is incorrect or derogatory, your credit score will be affected. Luckily, mortgage lenders/brokers are aware of this potential problem and ways exist to correct your credit report if needed.
How can I obtain a copy of my credit report?
There are three main credit bureaus that provide credit information to CRAs. You may write or call any of these bureaus to obtain a copy of your credit report. Keep in mind that the bureaus do not share information with each other, so you should contact all three to get a full picture of your credit.
Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
Experian (formerly TRW)
National Consumer Assistance Center
P.O. Box 2104 Allen, TX 75013-2104
Trans Union Corporation
Consumer Disclosure Center
P.O. Box 390 Springfield, PA 19064-0390
How can I find out what my credit score is?
Lenders/brokers are not required to tell you your credit score, although many will. If you have been turned down for a mortgage because of your credit score, the lender/broker is required to tell you the reasons that your score is too low. If you do find out what your credit score is, keep in mind that a credit score is just part of the lending decision. If you were turned down for financing, make sure to find out if the decision was based in whole or just part on your credit score.
How are credit scores used in making lending decisions?
Your credit score is a quick, reliable indication of your future credit performance. In mortgage lending, the higher the score, the lower the credit risk. However, when you are applying for a mortgage, many other factors will be used in making a loan decision. Also, a bad credit score with one lender might be a good credit score with another lender. Your lender will use your credit score as one of the factors in determining whether you qualify for the loan for which you applied.
How are credit scores calculated?
Credit scores are calculated using mathematical tables with points assigned to each piece of information. These “scoring models” include factors that have been proven to predict future credit performance. The following are some examples of factors that will be used to calculate a credit score:
- Number of open credit accounts
- Amount of credit balances
- Length of credit history
- Number of credit inquiries
- Past and current payment delinquencies
- Other derogatory credit
This fee is to pay the attorney or closing officer for preparing and reviewing all of the documents needed to close your loan.