Credit Inquiries: Whey They Matter, When They Don’t

Credit Inquiries: Whey They Matter, When They Don’t

A credit inquiry is logged when someone, either an individual or a business, requests the credit history from one of the three main credit repositories of Equifax, Experian and TransUnion. Credit inquiries are also play a part when calculating a credit score.

But there can be concerns when there are several inquiries within a short period of time but at other times these additional inquiries don’t have an impact, even when applying for a mortgage.

Soft Inquiries

There are two basic types of inquiries, a soft inquiry and a hard inquiry.

A soft inquiry is certainly a request to review credit but it’s one that is made by a third party prior to offering someone the opportunity to apply for credit. When someone receives a solicitation in the mail from a credit card company, the company previously took a quick look at a credit report to see if that person is eligible to apply.

A soft inquiry can also come from a potential employer. A soft inquiry isn’t associated with a direct request for a credit account. Consumers who get a free copy of their credit report each year, that’s considered a soft inquiry. A soft inquiry will have no affect on a credit score.

Hard Inquiries

A hard inquiry on the other hand will impact a score. A single request for credit won’t hit credit scores hardly at all, especially if the request is an isolated one. But what does affect scores as it relates to inquiries is when multiple requests for credit within a shortened period of time and for different types of credit.

For instance, someone applies for three revolving credit cards at the same time in addition to a department store card. Credit score algorithms see this as a red flag as it could indicate the individual is soon heading into some financial worries and is looking to establish some new credit lines to help ward off any potential money problems. That’s when multiple inquiries matter.

Consumers however can be confused regarding multiple inquiries. After a little online research, they can read up on what improves and harms credit scores, and multiple credit inquiries are one of the bad ones. But that’s not necessarily the case as it relates to home loans.

Let’s say someone has applied for a mortgage. But after two weeks the applicant hasn’t heard from the loan officer. No correspondence, no return phone calls, just a lot of unanswered voice mails. Thinking that applying for a mortgage with another company would trigger another hard inquiry, the applicant just sits tight and prays the loan will go through and close on time. However, that doesn’t have to be the case.

The Consumer Financial Protection Bureau, or CFPB, has established guidelines as it relates to credit inquiries. With a mortgage, a consumer can in fact apply with a new lender and have a new credit report pulled with no effect on scores whatsoever. How? The rules state as long as the inquiry is made for the same purpose (buying a home or refinancing a mortgage) and made with a 45 day period, the additional inquiry is benign. There is only an issue if an application was made, the loan not closed and applying again four or five months later. But if a new request for a mortgage is made within that 45 day window, no harm and no foul.

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This is the Most Misunderstood Number in the Mortgage Business 

This is the Most Misunderstood Number in the Mortgage Business 

The Annual Percentage Rate, or APR, is often the most misunderstood number consumers see when applying for a mortgage.

Even though consumers are provided mounds of documentation explaining various processes, closing costs and cash-to-close requirements, it seems the APR is the number that causes more head-scratching than others. Too often, even the individual loan officer can’t explain the APR without getting confused or worse, telling the applicant that it’s not really that important and to ignore it. The note rate is used to calculate monthly payments, not the APR.

The explanation is this: The APR represents the cost of money borrowed expressed as an annual rate. That’s it. It’s that simple.

How is it calculated?

It’s a combination of the note rate, the rate used to calculate a monthly principal and interest payment with a nod toward certain closing costs needed to get a particular rate. Lender fees and other third party services may also be needed, and they all need to be paid for at the settlement table, referred to as finance charges. But upon an initial application where disclosures are required by statute to be prepared and delivered to a borrower, the APR must be disclosed at the same time.

APRs are supposed to provide consumers with the ability to shop around for rates and compare one lender to another. The thinking is if one lender has a lower APR than another, then the lender with the lower APR is offering the best deal. But that’s not really the case. APRs can vary based upon the term of the loan, closing costs and which day the APR was initially prepared. An APR for a 15 year loan will be different than the APR for a 30 year loan even with the exact same loan amount. APRs are good consumer tools, but only if properly used.

The key is the difference between the note rate and the APR. If there is somewhat of a large disparity between the two, that tells you there are more fees involved. An APR where the difference between the note rate and APR is relatively minor, tells the borrower there are fewer prepaid finance charges needed to get the desired rate.

Here’s an Example

A borrower gets a note rate of 3.25 percent and the APR is disclosed at 3.27 percent. Now, the borrower gets a note rate quoted at 3.25 percent and the APR is 3.50 percent. This is all for the exact same loan term and loan amount, remember. The loan with the 3.27 percent has fewer finance charges needed compared to the 3.50 percent number. Lower finance charges provide a lower APR number.

When you receive your loan disclosures, review your documents carefully and look for the APR number in the file. It will be there. If you have any questions about the APR, simply call me and we’ll review together. But put simply, the APR represents the cost of money borrowed expressed as an annual rate.

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Fed Cuts Rates for First Time in Nearly 10 Years And That’s Good News For You

Fed Cuts Rates for First Time in Nearly 10 Years And That’s Good News For You

In a surprising move, the Federal Open Market Committee, or FOMC, lowered the Federal Funds rate by 0.25%, from 2.25 to 2.00, reversing last December’s rate increase of 0.25%.

The Federal Funds rate is the rate that banks charge one another for overnight lending, and while it isn’t directly tied to your standard 30-year fixed mortgage, it does hint that the FOMC believes the economy is booming and will continue to do so several months down the road.

And what does a healthy economy mean? You guessed it—lower interest rates on home loans.

Now is the best time ever to apply for a mortgage loan. Are you ready to be a homeowner? Apply today.

Hamilton for Heroes: Now Available to Help Even MORE Heroes!

Hamilton for Heroes: Now Available to Help Even MORE Heroes!

DID YOU KNOW?: The Hamilton for Heroes mortgage program is not only for active and retired Military and Veterans. These benefits are now available to active Police Officers, Firefighters and Emergency Medical Technicians (EMTs).

We want to thank our Heroes for helping to make our communities safer places to live! When our Heroes purchase or refinance a home, we will waive our lender fees (a value of $1,590).

  • First responders (firefighters, police officers and EMTs), active and retired military, veterans and surviving spouses are eligible
  • No limit to the number of times an eligible borrower can take advantage of this offer
  • A variety of Hamilton purchase and refinance loan programs are eligible for the offer in addition to VA loans
  • VA loans offer additional benefits such as no down payment and no mortgage insurance to military personnel
  • Dedicated service from a team of mortgage experts who understand the unique needs of our heroes
Please call or email me today to learn more about how we can work together to help our Heroes become homeowners! You can also apply online.
New Law Allows You to Get a Bigger VA Home Loan Without a Down Payment

New Law Allows You to Get a Bigger VA Home Loan Without a Down Payment

VA home loans are one of the best benefits available to veterans. The program allows honorably discharged veterans to buy a house without a down payment. But now the program is about to get even better.

A new law expanding VA disability benefits to more veterans who were exposed to the herbicide Agent Orange during the Vietnam War will change home loan limits for all veterans.

The bulk of Public Law 116-23, the Blue Water Navy Vietnam Veterans Act of 2019, which became law on June 27, 2019, addresses the expansion of VA disability benefits for Agent Orange exposure to those who served in ships off the coast of Vietnam during the war. Previously, only those who served in-country or on inland waters were eligible for disability benefits.

So what does that have to do with VA home loans?

To pay for the expanded disability benefits for the approximately 90,000 veterans who may now be eligible, the VA is removing limits on VA home loans.

Currently, VA limits the price of a home you can buy without a down payment to $484,350 for most of the country. This amount is based on limits set by the Federal Housing Administration (FHA), and it changes every year.

If you want to buy a house that costs more than the FHA limit, you can’t use a VA home loan without having to pay a down payment, and that down payment usually has to be enough to bring the purchase price down to the FHA limit. That means if you buy a $500,000 house you have to come up with a cash down payment of $15,650 ($500,000 – $484,350).

New VA Home Loan Limits Coming Jan. 1, 2020

Starting Jan. 1, 2020, when the new law takes effect, the VA will not cap the size of a loan a veteran can get, paving the way for veterans to buy higher-value homes. Of course, the lender may still issue a cap and deny a large loan. But the denial won’t be due to VA home loan rules.

A VA home loan is not the VA lending you money. Instead, the Department of Veterans Affairs “guarantees” to a lender that you, as a veteran, are a good credit risk. That guarantee allows you to get a home loan without having to make a down payment.

The other change that comes with the new law will affect fees for some veterans. VA charges most veterans a “funding fee” when a VA loan is issued. Veterans receiving any VA disability benefits are exempt from the funding fee. The funding fee for an active-duty veteran purchasing a home will increase from 2.15% of the purchase price to 2.35% of the price on Jan. 1, 2021. (There are different funding fees depending on the kind of loan and the situation of the borrower.)

The VA and Congress hope the increased money coming in from a combination of the increased funding fee and the eliminated loan limits will be enough to cover the disability benefits of the Vietnam veterans and their children who suffer long-term health problems due to Agent Orange exposure. That remains to be seen. However, for many veterans looking to get a new home loan, especially those in high-cost areas, the process has become easier.

Ready to buy a new home? Click here to apply.

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