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The items listed above are the most typical occurrences that affect a Lender's ability to close the loan transaction successfully, and on time. From the time that a loan transaction begins, to the time escrow closes, a Borrower's credit scores, account balances, debts, assets, employment and income are reviewed at varying intervals. If any of the above items are going to occur during your loan transaction, contact your mortgage consultant before taking action, so that every measure possible can be taken to ensure the loan transaction closes successfully and on time.
IMPORTANT: New Federal funding guidelines (part of the Loan Quality Initiative) require a second/final credit check immediately before closing escrow. If the new credit report reveals any inconsistencies versus the original credit report, the mortgage is subject to a complete re-underwrite, delays and a possible turndown.
Count on your Loan Officer to:
The items listed above are the most typical occurrences that affect a Lender's ability to close the loan transaction successfully, and on time. From the time that a loan transaction begins, to the time escrow closes, a Borrower's credit scores, account balances, debts, assets, employment and income are reviewed at varying intervals. If any of the above events or items are going to occur during your loan transaction, contact your mortgage consultant before taking action, so that every measure possible can be taken to ensure the loan transaction closes successfully and on time.
27. How does Credit Reporting work?
A credit report may be run for a fee. Our mortgage consultant will go over the report with you to make sure the balances are accurate.
Each bureau has different items reported to them and these items provide a credit score that will vary between each bureau. Based on these scores, the lender will determine loan eligibility and pricing. Major criteria for determining your score are:
Through the search and examination, title problems like these are disclosed so they can be cleared up whenever possible. But even the most careful investigation cannot locate all hidden defects of title.
In spite of all the expertise and dedication that go into a search and examination, hidden defects can emerge after completion of a real estate purchase, causing an unpleasant and costly surprise. Some examples are:
Thanks to title insurance, homebuyers can enjoy protection against many title claims and potential losses. When title insurance is provided, lenders are willing to make mortgage funds available in geographic areas where they know little about local market conditions. Title insurance policies offer unique safeguards that are essential for secure investments by both real estate purchasers and lenders. Make sure you are fully protected.
Why Do I Need Title Insurance?
Purchasing a home is probably the single biggest investment you will ever make. When you purchase property, what you actually acquire is title to the property. Your title encompasses ownership, use and possession of the land. However, title to property may be limited by rights and claims asserted by others. Before closing on the house, you'll want to know that no other individual or entity has a right, lien or claim to the property.
Owner's vs. Lender's Title Insurance
There are basically two basic kinds of title insurance: owners coverage and lender (or mortgagee) protection.
For a modest, one-time title insurance premium, an owner will receive continuous title insurance protection in an amount equal to the purchase price of the property or its current market value. Lender's title insurance is based on the loan amount and is required by lenders as security for their investment in real estate, just as they require fire insurance and other types of coverage as investor protection.
One of the marked advantages of title insurance is that prior to a policy being issued, the title insurance company completes extensive research into relevant public records, maps and documents to trace ownership of the property and determine if anyone other than you has an interest in the property. Through its research, the title insurance company can usually identify any title problems that may arise and have these problems cleared-up prior to closing.
Your title insurance owner's policy will describe the property and outline any recorded limitations on your ownership. It will also set forth the title insurance company's responsibilities should any claim covered by the policy terms arise. Typically your title insurance will protect you from loss:
Debt to Income Ratio
Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.
There is generally a debt limit associated with each type of loan, such as a 33/38 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance- if applicable, hazard insurance, property taxes and homeowner's association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
Remember these are just guidelines. Many loan programs exist with more flexible guidelines. Talk with your Commerce Home Mortgage Consultant so we can assist you to find the best rate, in the right loan program, to meet your short and long term financial goals.
Requests for payment for various services to be paid out of escrow funds
You will typically go to the escrow/title company office to sign loan documents and prior to closing escrow, you will be notified of the amount of funds required to be brought to escrow. These funds typically must be in the form of a cashiers check.
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the buyer and appropriate title insurance is issued as outlined in the escrow instructions.
A Mortgage Escrow Account is set up by your lender (optional), and is also referred to as an Impound Account. This is different than what is described above.
A Mortgage Escrow Account is established to pay on-going expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance, and other escrow items. Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.
If you are receiving a gift for the down payment, you will need to provide a gift letter, and we'll need to verify the source, transfer and receipt of the gift funds.
Deductible Homeowners Expenses
One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax.* To do so, youll need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules.
Home Mortgage Interest
For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally
The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.
Points (aka loan origination fees, loan discount, or discount points) are generally treated as pre-paid interest and, as such, the full amount can be deducted in the year paid on a purchase transaction. On a refinance, points must be deducted over the term of the loan.
Real Estate Taxes
State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the propertys assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.
Restrictions on Itemized Deductions
The amount of itemized deductions you can take are restricted by your adjustable gross income.
Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:
*The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Please consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.
The Good Faith Estimate is a document that you will receive notifying you of estimated fees in obtaining a new mortgage. Fees are classified into two categories: non-recurring closing costs and recurring closing costs.
The estimates given for the non-recurring closing costs are one-time fees and are based upon the purchase price and estimated loan amount. These estimates should be very close to the figures you will see at close of escrow. Included in this category are title fees, escrow fees and points. The points quote will be accurate if the rate has been locked.
Recurring fees are ongoing costs associated with home ownership, and vary based on the following circumstances:
Your Commerce Home Mortgage Consultant will provide an estimate of all anticipated fees for your loan transaction and is happy to discuss them in detail with you at any time. Depending on how we structure your loan, we may be able to provide a credit in escrow to cover some or all of your non-recurring closing costs.
Before you reach the closing day, you will want to make a decision as to how you will "hold title" to the property. This decision has legal, tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA). Some lenders restrict how the borrower is allowed to hold title at closing. Please consult with your Commerce Home Mortgage loan officer for additional details.
The following information is supplied for informational purposes and should not be relied upon as legal definitions.
Buying with Others
Additional Ways to Hold Title
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they're named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights.
How can you improve your credit score?
It's virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. We can assist in analysis to see if your score can be improved. This can occasionally happen quickly, but more often takes time.
Make sure that the information each of the three credit reporting bureaus is reporting is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made "consumer-originating" credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what's on them, and smart consumers shop around for the best mortgage and car loans.
The two main components of your credit score are your payment history and the amounts you owe. Bankruptcy filings and foreclosures, which can stay on your credit report for as many as 10 years, can significantly lower your score. It's never a good idea to take on more credit than you can handle.
Late payments work against you. It's extremely important to pay bills on time, even if it's only the minimum payment.
Dont "max out" your credit lines. Since the size of the balance on your open accounts is a factor, lower balances are better.
It's said that by carefully managing your credit, it's possible to add as much as 50 points per year to your score.
Higher credit scores mean you're a lower credit risk and you'll benefit from lower mortgage rates. So it pays to be knowledgeable about credit scores.
Lastly , unsolicited credit card solicitations in the mail don't count negatively against your credit score, so don't worry.
Fannie Mae is no longer allowing any credit report items to contain a “dispute”. If you are thinking of purchasing a home or refinancing, and have a ‘disputed’ item on your credit report, please follow these general guidelines.
If the consumer initiated the original dispute directly with the creditor:
The consumer may contact the creditor and request that their dispute be revoked and that each of the bureaus be updated immediately. Depending on the individual creditor’s policies, this may or may not happen that quickly and easily but it may be worth the attempt as it could provide the means for a quick update to all three bureaus.
If the consumer initiated the original dispute directly with the credit bureau(s):
The consumer would have most likely obtained their credit bureau report from annualcreditreport.com and initiated a dispute online. If so, you should now be able to contact each bureau online or by phone to request that the disputed status of a specific trade line be removed.
The consumer has 30 days to initiate such an action online from the date they accessed their credit _le. If the consumer does not recall how their dispute was initiated, but wishes to revoke their dispute with the bureau directly, then they should access their _le from: http://www.annualcreditreport.com/ – or the bureau’s website and proceed with disputing the ‘disputed’ status of the trade line(s). This may include contacting the bureau’s consumer assistance center at the number displayed on their bureau report.
When the above options are not available and time is of the essence, you may request the dispute removal through a Rapid Rescore program.
The credit bureaus require the following documentation:
Commerce Home Mortgage, will then fax this documentation along with a Rapid Rescore Request Form. Rapid Rescore charges would apply.
We hope you find this information helpful. Please feel free to contact us at any time for assistance in a specific scenario that you may have.