26
Mar
By Fred Gruber
Mortgage

The Difference Between FICO Score and Credit Score: How It Affects Your Mortgage and Rates

When applying for a mortgage, your creditworthiness plays a significant role in determining your loan approval and interest rates. Two commonly referenced terms are FICO score and credit score, which are often used interchangeably but have distinct differences.

1. What is a Credit Score?

A credit score is a broad term that refers to a numerical representation of a consumer’s credit risk. It is calculated based on various scoring models, including FICO and VantageScore, and is derived from credit report data such as payment history, credit utilization, and length of credit history.

2. What is a FICO Score?

A FICO score is a specific type of credit score developed by the Fair Isaac Corporation. It is the most widely used scoring model by mortgage lenders. FICO scores range from 300 to 850 and are calculated based on five key factors:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit inquiries (10%)

3. How Do They Affect Your Mortgage?

  • Interest Rates: A higher FICO score typically qualifies you for lower mortgage interest rates, while a lower score may result in higher rates or loan denial.
  • Loan Approval: Lenders often have minimum credit score requirements, and FICO scores are a primary factor in the underwriting process.
  • Loan Terms: Your score can affect down payment requirements and loan programs available to you, such as conventional, FHA, or VA loans.

4. Key Differences

  • Scope: Credit scores can come from various models, while FICO is a specific scoring model.
  • Usage: Most mortgage lenders rely heavily on FICO scores for risk assessment.
  • Impact: Your FICO score has a direct influence on mortgage rates and loan eligibility.

Understanding the distinction between a FICO score and a credit score is essential when preparing for a mortgage application. By improving your FICO score, you can increase your chances of securing better loan terms and lower interest rates.

25
Mar
By Fred Gruber
Mortgage

Navigating Mortgages as a Self-Employed Professional

Securing a mortgage as a self-employed professional can be more challenging than for traditional W-2 employees, but with the right preparation and documentation, it is entirely achievable. Here’s a guide to help you navigate the process:

  1. Document Your Income
    Lenders need to assess your financial stability and income consistency. To do this, you’ll need to provide:
    • Tax returns for the past two years
    • Profit and loss statements
    • Bank statements
    • Client invoices or contracts
    • Consistency is key, so showing steady or increasing income over time strengthens your application.
  2. Manage Your Tax Returns
    Many self-employed individuals minimize their taxable income through deductions, but this can reduce the income lenders consider when evaluating your mortgage application. It’s essential to strike a balance between tax savings and showing sufficient income for loan qualification.
  3. Boost Your Credit Score
    A strong credit score can offset some of the challenges associated with self-employment. Pay down debt, make timely payments, and avoid opening new lines of credit before applying for a mortgage.
  4. Increase Your Down Payment
    A larger down payment can make you a more attractive borrower. It reduces the lender’s risk and can help you secure better interest rates.
  5. Work with a Mortgage Professional
    Partnering with a mortgage originator who understands the unique needs of self-employed borrowers can make a significant difference. They can help you find lenders that specialize in working with non-traditional income streams.

While obtaining a mortgage as a self-employed professional may require additional effort, proper documentation, financial management, and the right guidance can help you achieve your homeownership goals.

20
Mar
By Fred Gruber
Mortgage

Understanding Mortgage Payment Deferral Programs

For homeowners facing temporary financial hardship, mortgage payment deferral programs can provide much-needed relief. These programs allow borrowers to pause or reduce their monthly mortgage payments for a specific period, helping them avoid foreclosure while stabilizing their finances.

What is a Mortgage Payment Deferral?

A mortgage payment deferral allows borrowers to temporarily postpone their monthly mortgage payments. The deferred payments are not forgiven but are typically added to the end of the loan term or repaid through a repayment plan.

Who Qualifies for a Mortgage Deferral Program?

Eligibility criteria vary by lender and loan type, but common factors include:

  • Experiencing financial hardship due to job loss, illness, or natural disasters.
  • Being current on mortgage payments or having a history of timely payments.
  • Providing documentation to support the hardship claim.

How Does the Deferral Process Work?

  1. Application: Homeowners must contact their lender to request a deferral and provide evidence of financial hardship.
  2. Approval and Terms: The lender evaluates the request and outlines the terms of the deferral, including the length of the deferral period and repayment options.
  3. Repayment Plan: Once the deferral period ends, the borrower may need to make lump sum payments, extend the loan term, or increase future payments to cover the deferred amount.

Key Benefits of Mortgage Payment Deferral

  • Temporary Financial Relief: Helps homeowners manage temporary financial challenges without the risk of foreclosure.
  • Protection of Credit Score: Many programs are designed to prevent negative credit reporting during the deferral period.
  • Flexible Repayment Options: Lenders offer various repayment strategies to accommodate the borrower’s financial situation.

Important Considerations

  • Interest Accrual: Interest may continue to accrue on the deferred balance.
  • Impact on Loan Term: Adding deferred payments to the end of the loan may extend the repayment period.
  • Lender Communication: Regular communication with the lender is essential to understand the program’s terms and avoid penalties.

How to Apply for a Mortgage Payment Deferral

  1. Contact your lender or loan servicer.
  2. Explain your financial situation and request information on available deferral programs.
  3. Submit the required documentation.
  4. Review and agree to the terms provided by the lender.

Mortgage payment deferral programs can be a lifeline for homeowners facing temporary financial difficulties. Understanding the eligibility criteria, process, and potential impact on your loan can help you make informed decisions and protect your financial stability.