Mortgage and Portfolio Loan Guide

5 Odd Things Your Credit Report Doesn’t Show

Good or bad, there are some misconceptions about what information is shown on the credit report.

Before diving into what doesn’t show, let’s take a look at the things that are reported.

When you are looking to buy or refinance a home, your lender will want to take a look at your credit report. Your lender is looking for several specific things.

A few things we do look for on your credit report:

  • Monthly liabilities like car loans, credit cards, student loans, and personal loans. Your monthly liabilities are used to calculate your debt-to-income ratio, and play a big part in your mortgage approval. The ideal situation is to have a DTI (debt-to-income ratio) of 45% or less. So basically you want to have monthly expenses that equal to less than half of what your monthly income is. Note: Student loans sometimes are in deferment status, so no payment is shown. In this case the lender will use a percentage of the balance as a monthly payment, or you can provide a letter from the student loan company stating what your payment will be when you start paying on your loan. With some loan programs you’re able to exclude that liability entirely as long as the loan isbusiness-17965_640 deferred for a certain amount of time (usually at least 12 months).
  • Credit scores. The lender is pulling a trimerge credit report. This means your scores and history are being pulled from all three credit bureaus (experian, equifax, and transunion). The lender will use the middle of the 3 scores. Don’t be surprised if each score is different, that’s common. The reason they are different is because not all creditors report your liabilities to all three bureaus (because it costs time and money to do so). By pulling your credit from all three credit bureaus, we’re able to see as much history as possible to make an educated decision regarding your credibility as a borrower.
  • Bruises. Things like current or past collections, late payments, judgments, tax liens, bankruptcies, foreclosures, and short sales are reported on your credit report. As a lender we take these into consideration when making a decision on your loan. We look for: how long ago did this take place, is there anything still outstanding, have you gotten back on your feet (re-establishing your credit)? Most people think that if they had a bankruptcy or foreclosure in the last year, they can’t buy a house, but with portfolio loans there may be an option if you’re back on your feet.

So those are the basics that we look for on a credit report. But what about the other stuff?

Time and again I go over credit reports with borrowers and it seems like the same questions pop up. “What about ‘X’ liability? I have been paying on that for years, doesn’t that count for something?”

Very valid point. Let’s take a look.
Repair your credit today with Lexington Law

 

5 things that don’t typically show on your credit report:

red 1 brighton mi mortgageYour rent payment history.

You have been renting for two years. Never late. Your landlord loves you, but your credit score is 550. What gives? Doesn’t two years of faithful payments mean anything in this world? Yes, and no. Yes it means something because when you get a mortgage your lender will contact your landlord for verification of on-time payments (verification of rent or VOR). By having a squeaky clean history you simply set yourself up for success.  On the flip side, your faithful payments are not going to be reflected on your credit report because it’s highly unlikely that your landlord will take the time and effort to report your payment history to the credit bureaus. The landlord would actually have to pay to report their information to the bureaus.

red 2 brighton mi mortgageYour income.

“Just take a look at my credit report, you’ll see where I’ve worked and how much I’ve made.” Um, no. Your income is definitely not reported on your credit report. There may be instances where your employer’s address could pop up on your report as a previous address, but the credit bureaus do not know how much you make. Nor should they. The fact of the matter is, your income isn’t a refection of creditworthiness. Income is definitely a factor with a mortgage approval, but not given any weight when it comes to credit score.

red 3 brighton mi mortgageLand contract history.

Some people buy their home with seller financing (commonly called “land contract” in the great state of land contract brighton mi mortgageMichigan). This is a way to purchase a home if you don’t fit within normal lending guidelines. The seller acts as the lender and accepts payments each month. There are some companies that will actually assist the seller with managing this type of private mortgage. The problem is it takes additional time and effort for the seller to go through the process of getting credit reporting set up. I say that there are companies that help with these types of matters, but to be honest, I have never seen land contract payment history on a credit report. Ever. In this case the (new) lender would reach out to the land contract holder to verify the payments have been current, get an official payoff, and verify with the county if the land contract was ever recorded.

red 4 brighton mi mortgageReal time data.

Your credit report doesn’t get updated like your Facebook feed. If you pay down a credit card, and have your credit pulled the next day, it’s probably still going to show your previous balance. If you’re looking to get an increase in your scores, pay down your balances on your credit cards, and wait a couple of weeks. Some experts have a rule of thumb to make the payment, wait until the next bill comes out (showing the new balance), and then have your credit pulled by your lender. To me that makes sense.

red 5 brighton mi mortgageThe sob story (last but not least).

There is always a detailed story behind each derogatory mark on a credit report, big or small. Whether it was your brother’s cell phone bill that you refuse to pay, or the hospital bill that insurance was supposed to cover. There’s always a long explanation. The credit report simply spits out data that they receive from creditors, not much more than that. If you have a situation that you believe is incorrect CALL THE CREDITOR. It’s not just going to “go away”. Talk to 10 different people if you have to, but come to some sort of resolution. If you choose to officially “dispute” the debt, it may create problems on your mortgage approval that you didn’t intend.

What is the weirdest thing you found on your credit report that you had to fight tooth and nail to get removed? Better yet, what was one thing you thought for sure would be on your credit report, but never was added?

Adam Lesner | Brighton, Michigan | Mortgage Loan Officer NMLS 198818

So Your EX Destroyed Your Credit…

Portfolio Loan

Post-Divorce Mortgage

I have seen it countless times. An otherwise “A grade” borrower is left with no mortgage options because their ex-spouse was extremely irresponsible with their finances while going through divorce. Resulting many times in no other option than having to file for bankruptcy, and even foreclose on their home.

For these types of situations there is hope!

FHA, VA, and conventional guidelines are set in stone. As brutal as it sounds, they don’t really care about the sob story. If you had a nasty divorce which resulted in a bankruptcy, short-sale, or foreclosure you’re pretty much between a rock and a hard place if you have any desire to be a homeowner in the next couple years.

So what can you do? You have been a homeowner since you graduated college 15 years ago. Are you really going to be forced to live with family, or rent? NO. Believe it or not, there are lenders out there that take a common sense approach to mortgage loans for people with bad creditlending. Lenders that will look at your situation from a common sense standpoint, and make every effort to understand exactly what led to the circumstances that you’re in. Lenders that will take into consideration that you fell on hard times, but are now back on your feet. These are the lenders that offer in-house portfolio lending. Lending designed to bring common sense back into the home financing world. Where you don’t have to fit inside the little black and white boxes of the strict government guidelines.

Imagine that?  Being treated like a human being instead of a statistic. What a refreshing concept?

So where do you start? The best thing to do is seek out a small-to-mid-size lender, bank, or credit union which offers portfolio loan financing. Find out what their requirements are for these unique loans. Find out what you can do to prepare as best you can. There are still going to be requirements to meet because they want to make sure you ARE back on your feet, and confirm that you do have the ability to repay the loan.

thumb-422147_640Some things to prepare yourself for when getting a portfolio loan:

  1. You’ll probably be required to put at least 10% down.
  2. Points may be required to cover the level of risk they are taking.
  3. Typically there is no mortgage insurance requirement 🙂
  4. You need to have a verifiable income.

 

Other situations when a portfolio loan may be your best option: unique property you’re looking to buy, self-employed less than two years, bad credit because of an isolated incident like a work injury, etc.



You thought you didn’t have a chance in the world to buy a home, but don’t give up. If you’re back on your feet, and you have at least 10% for down payment, home-ownership may be more within reach than you thought.

portfolio mortgage lenders

 

I invite you to reach out to me directly to see if a portfolio loan is the right fit for you.

At the very least I should be able to point you in the right direction.

 

real estate investment loans

Repair your credit today with Lexington Law

4 Things to Stop Doing as Soon as You’re Pre-Approved

Isn’t it fun getting a mortgage pre-approval?

You get your credit pulled by the nice guy in a tie at the bank. You tell him about all the glorious money you have to put down on your home. You drink coffee and explain how you make a clean salary, and you hardly ever use your credit cards…

Of course he is happy to print off your crisp, clean pre-approval letter. He connects you with the local real estate genius, and the house hunting begins.

All of the sudden your dog gets sick and you have to pay $900 to keep it alive. “Well sorry ole’ Sparky but I can’t dip into the family savings, let’s use the AMEX to keep the ticker ticking.”

A week later you finally sell your BMX racing bike on craigslist and you’re feeling good with a nice $1,500 deposit into the rainy day fund.

Jimmy from high school gives you a ring and asks you to be a partner in his new business venture, and you accept the offer. C’mon, YOLO.

There was a sweet deal going on at Buy Here, Pay Here, and you finally got the Bronco 4×4 you’ve always wanted.

Uh oh, why is my mortgage guy asking for a paper trail for this stuff? Any why has my credit score tanked? This new business is gonna kill it. What, do they want a blood sample too?

  • Don’t use your credit cards past 30% of you available balance. It’ll change your scores in a way you and your lender won’t like. Sometimes (depending on how long it takes to find a house) your credit may need to be pulled again.
  • No large deposits in your bank account that can’t be easily sourced. (anything other than salary income). Large deposits raise red flags and need to be sourced. What the lender wants to know: “where did it come from?”  “do you have mysterious liabilities we don’t know about that you’re paying back?”
  • Don’t change jobs. Can that wait while you make one of the biggest investments of your life? Consistent income helps strengthen the likelihood of your file being approved.
  • Stop buying stuff. When your lender pulls your credit they are taking into account all of your liabilities, and taking into account what your income is in order to calculate what you’re approved for. If your liabilities increase, there is a chance your pre-approval will decrease. Make sure to ask how tight your ratios are.

Remember, the lender is on your side (believe it or not). We WANT to earn your business. But if you decide to change your financial circumstances after you get pre-approved for a mortgage, just understand that there is going to be some leg work involved to put the pieces of the puzzle together.


E005: 4 Things to STOP After Pre Approval


Tip of the day: When you get pre-approved, provide all your stuff up-front. Tax returns, W-2s, pay stubs, bank statements. This will minimize room for error or misunderstanding.

portfolio mortgage lendersNeed a mortgage pre-approval?

I invite you to reach out to me.

Get the pre-approval you’re looking for from me. You won’t be talking with some newbie. You’ll be talking directly with me, Adam Lesner. If it turns out I can’t help, I’ll usually be able to point you in the right direction at the very least.

pre approved home loan

What “crazy” item did your lender ask you for that seemed absolutely ridiculous?

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Finally! Mortgage Loans for Bad Credit

mortgage loans for bad credit 1

Yup, you’re approved!

Applying for mortgage loans when having bad credit can be uncomfortable to say the least. I can’t tell you how many times I’ve heard the same story. A great family, with strong stability fell on hard times. They had to let their house go because of a serious injury, downsizing of a company, or loss of a loved one. In many cases those folks get back on their feet within 6 months to a year, and would like to buy a home again. However, with the lending guidelines in today’s world, that can be quite a challenge.

The good news is there are lenders out there that will treat you like a human being. Mortgage loans for bad credit do exist, and I’ll tell you how to find them WITHOUT having to jump through a million hoops.

How bad can your credit be?

Well, it depends…

Credit scores and time since the blemish really aren’t the main factors. The main factor is “why”. What’s the story behind the credit problem? Were you blatantly irresponsible? Or did you have a rough patch?

Let’s say you had a foreclosure a year ago because your company outsourced your job after they cut your pay 50% a year before they let you go. You were in a position that you genuinely couldn’t afford to make your payment and had no choice but to foreclose. As long as you can some how prove the course of those events taking place, and show a previous history of being financially responsible, you definitely have a chance to get approved.

Now, if you “gave your house back to the bank” because you noticed home values were declining, that’s another story. It has to make sense. There needs to be proof that there was a legitimate reason for the cause of the credit issue.

Who can offer bad credit loans?

The vast majority of lenders, especially big banks, and mega-originators, only write “A-paper”. They are (for the most part) extremely conservative with what they will approve, and who they will approve. You want to look for a small to mid-size local company. Maybe a credit union or a company who has some sort of partnership with a credit union. Small local banks are good too.

Why? These types of companies are typically privately held. They are more likely to be committed to building and strengthening relationships in the community, and bend over backwards to meet the needs of their clients. I’m not suggesting that there aren’t awesome people that work at BIG companies. All I am saying is that their hands are tied many times because of the company they represent.

There is something special about reaching out to someone and telling them you can help when no one else would even give them a second look because of their bad credit. Really giving folks a second chance without making them wait 2-7 years to get back on their feet.

What can you expect with these in-house loans?

  • Primary residence only.
  • Usually 10% down will be required. Gift okay.
  • The interest rates may be higher than typical loans.
  • No monthly mortgage insurance even if you put less than 20% down.
  • Paying points may be required.
  • Okay on purchase or refinance. Even cash-out is okay in some cases!

Getting a loan like this isn’t for everyone. Typically it’s a short term fix for people with unique situations, but know that home-ownership is right for them. Once they’re back on their feet within a couple years, it would most likely make sense to refinance into the loan that meets the needs of their updated circumstances. Did you know this type of opportunity was available right now?

portfolio mortgage lendersI invite you to reach out to me.

Get your questions answered.

You won’t be talking to some newbie or intern, you’ll be talking with Adam Lesner directly. We don’t get everyone approved, but we do our best to find the right loan if it makes sense.

pre approved home loan

Check out video below:

Adam Lesner NMLS 198818 | Mackinac Savings Bank NMLS 401686 | Main offices in Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Ohio, Oregon, Tennessee, Virginia, Wisconsin.  

 


Repair your credit today with Lexington Law


How to Build Credit to Buy a House

Prepping Your Credit for a Mortgage

When you’re finally ready to become a homeowner; it is certainly an exciting and anxious time! The last thing anyone wants to do is find out last minute that there is a blemish on their credit report that cannot be resolved quickly enough to close on your dream home in time. In Part 1 of the “keeping your home loan process simple” series we looked at all the basics of the puzzle on a mortgage approval. In this portion we’ll look at the credit piece in detail order to keep potential home buyers in the loop on what to be ready for.

Your credit report is your opportunity to show your credibility to your lender. It serves as a reference of the liabilities you have paid in the past and present.

Your credit report is heavily considered with your approval because it gives an indication as to how you treat the responsibility of paying items you’re liable for. If you have 0 previous derogatory marks, and you have 3-4 tradelines that you have been paying on time for 24 months; your credit should be in good shape. There is no question that everyone’s situation is unique in many ways.

 

Understanding how information on your credit is evaluated can “make you” or “break you”. If you can anticipate issues that you may encounter; you’re really putting yourself a step ahead of the game. Below are a few explanations of common terms to help decipher what a credit report shows. 

Score

There are loan programs available that allow you to buy a home with a credit score below 640. However, the objective is simplicity. So with that in mind; a good goal would be to make an effort to be at 680 or higher as a middle score (as reported by Experian, Equifax, and Transunion). Anything 740 and higher is considered excellent.

History

The history on your credit report is just as important of a factor as your credit score. Anything derogatory in the last 10 years is likely to be available to the eyes of the lender.

Tradeline

Any recurring debt that is reported by the credit bureaus on your credit report is a tradeline. Examples include but are not portfolio loan past credit issueslimited to car loan, student loan, personal loan (from bank), home loan, and recreational vehicle loan. Rent payments (although important to keep record of and pay on time) and utility bills are examples of liabilities that are typically not reported on credit reports.

Debt-to-income Ratio

Your lender will use your credit report as a starting point to help determine what your debt to income ratio is. Your lender will take into account the liabilities that show on your credit report, and compare that with how much your verifiable monthly income is. Of course your new mortgage, property taxes, property insurance, and mortgage insurance (if applicable) will be factored into the equation. You certainly can expect  any child support, alimony, and 401k loans to be factored into your debt as well. 

Example: Mr. Homebuyer has 3 credit cards that total 100/month, a mortgage of 900/month (including taxes and insurance), and makes 4,000/month. Mr. Homebuyer’s debt to income ratio is .25 (or 25%). Debt / Income = Debt to income ratio. To keep things simple you want to aim to be below 43% debt to income ratio.

Derogatory Items

Derogatory items that show on your credit report will hurt your scores, and create challenges when getting a mortgage. Late payments, collections, tax liens, bankruptcies, foreclosures, short-sales, and repossessions are some examples of derogatory items that can be found on your credit report. The more recent those items have been reported; the more negatively your scores will be affected. Here are some of the most common issues and tips on how to address them.
 
  • Late payments. Any liability that is reported on your credit report showing a late payment of 30 days or more will have a negative impact on your scores. Upholding your end of the bargain (paying on time) is a significant part of establishing good credit. 
  • Collections. These can be a result of an unpaid cell phone bill or even a medical bill you forgot to pay. Really, almost anything that you agreed to pay for in any fashion can be sent to a collection agency if it remains unpaid. It’s in your bestDoes a Portfolio Loan make sense for you- (1) interest to get collections resolved as quickly as possible once you’re aware of them. In some cases collection agencies will accept less than what is owed in order to resolve the debt. However, paying the collection won’t necessarily improve your credit. To improve your scores after paying the collection; request a “letter of deletion” from the collection agency. Basically it’s a letter confirming the collection shown on your credit report has been paid in full, and will be deleted from your credit report. If you can convince the collection agency to do that then make sure you ask for a copy as well. You’ll want to send a copy of that to all 3 credit bureaus. Some collection agencies will do this; others won’t. It’s definitely worth a try. You may need to talk to a manager and get it escalated. If you have 1 or 2 medical collections that are only a few hundred dollars you don’t need to lose sleep over that. Medical collections are not treated as severely as regular collection (depending on the size of the medical collection).
  • Tax liens. If you have taxes that you owe the IRS they will issue a lien, and report that to the credit bureaus if they are not paid by the due date. The best thing to do is pay your taxes on time because if there is a lien outstanding; the IRS may start tacking on interest to the balance that is owed. Any tax liens outstanding will hinder your ability to obtain home financing until that has been paid in full. You’ll need to provide your lender with proof from the IRS that it’s paid in full and clear.
  • Bankruptcy. There are two most commonly used bankruptcy types that consumers use; chapter 7 and chapter 13. You would need to consult with an attorney to decide which is more fitting for your situation. Guidelines related to mortgage approval after bankruptcy are constantly changing. As a rule of thumb you want to be at least 3 years out from when the bankruptcy was discharged before looking to obtain financing. Immediately after the bankruptcy is discharged it’s best to make every effort to “reestablish” your credit. That involves getting a couple new tradelines in your name (credit card, personal loan, student loan…). Once you have shown a 24 month history of reestablished credit; you’re setting yourself up for success. 
  • Foreclosure and short-sale. Similar to bankruptcies; you’ll want to be at minimum of 3 years out from when the foreclosure or short-sale was closed. Again, guidelines are constantly changing on these items. Working on getting your credit reestablished as explained in the above bankruptcy explanation should be a high priority. Check here for changes on this.
  • Repossession. If you decide to “give your car back to the bank,” you can expect repercussions. Make sure that once it’s repossessed that there are no lingering debts affiliated with that. It’s a good idea to make sure all of your other liabilities are on time, and in good standing for 24 months prior to seeking home financing.
Guidelines and regulations are constantly changing.
President Obama’s recent state of the union address briefly touched on how that needs to be a priority. The fact is owning a home is generally a significant component in realizing the American Dream. Hopefully guidelines will loosen up a bit from the extreme government regulations that are currently mandated. In the mean time; use this information as a tool to set yourself apart from the average home buyer. With some preparation, you can get a mortgage for bad credit. 

A couple closing tips… 

Don’t overextend your credit limits.
If your credit cards are pushing their limits, then this can be a red flag for lenders. Try to keep your credit card account balances below 35% of your available credit limit. This may keep you from looking overextended.

Credit glossary word of the week: CHARGE-OFF

A debt that is declared by the creditor as being noncollectable. This means the lender considers the money it loaned to the borrower is lost. Lenders use this as a last resort, once all collection efforts have failed. A bankruptcy filing often results in several accounts becoming charged-off. Charge-off s usually lower credit ratings. Also known as bad debt, charged-off account, charged-off balance, charged to loss, charged to profit and loss.

 How to Build Your Credit to Buy a House

Watch Video:

Listen to Podcast:

E001: How to Build Credit to Buy a House