Loans by Zach

Will checking your own credit report hurt your credit score?

When your credit is checked, this creates what is known as an “inquiry.”

There are two types of inquiries on credit reports:

* A Soft Inquiry
* A Hard Inquiry

When you check your own credit report, this is known as a “soft” inquiry and it will not affect your credit score whatsoever. You can check your credit all you want and your score will not be impacted.

Checking your FICO credit score or pulling your own credit report does not hurt your credit rating. The credit scoring system is set up so that inquiries made by a consumer checking his or her own credit score or credit report do not count in any way whatsoever towards lowering or raising one’s credit score.

When you apply for credit, whether it’s a mortgage or refinance, car loan, credit cards, or any of a number of applications for financing, this creates what is knows as a “hard” inquiry and this will lower your score slightly. Too many different credit applications over a short period of time can lower your credit score significantly, so don’t over-apply for credit.

One other note, if you fill out several credit applications for the same purpose over a short period of time, a mortgage for instance, this will normally be treated as a single inquiry–not multiple inquiries.

Credit inquiries made by credit card companies or mortgage lenders checking your credit report to send you pre-approved offers do not count either. If they did, every American would have a very low credit score.

However, if you respond to those offers, and the credit card company or mortgage lender pulls your credit report to do a more thorough investigation, it does count. It also counts every time you apply for any sort of financing, housing, insurance, employment, etc., and your credit report is pulled. How much does it affect your credit score? Each credit inquiry can lower your score by five points.

Five points for each credit inquiry sounds harsh, and it would be detrimental to someone who applied for many mortgage loans with many different mortgage lenders. However, the FICO scoring system counts multiple inquiries made in a 14-day period as just one inquiry, and all inquiries made within 30 days of the credit score being calculated are ignored. Therefore, if you are shopping for a mortgage loan, you should do all of your applying with various lenders within the same week to protect your credit score.

Does Checking Your Credit Affect Your Score?
By Liz Jones

When you apply for credit, the merchant or financial institution checks your credit report to see if you are a good credit risk. The credit bureaus call these checks inquiries, and they decide if these checks should affect your credit and, if so, how.

Facts
When a company checks your credit for a loan, it has a negative impact on your credit score. However, if you apply for credit only occasionally, the impact is minimal; your score may be lowered only by a few points. Checking your own credit does not have an impact on your credit score.
If you see inquiries on your credit record from companies you don’t recognize, these inquiries don’t have an impact on your credit score. These inquiries are from companies who send out pre-approved credit cards. They check your credit to see if you meet the overall guidelines for obtaining a credit card from their company, which is why you see the inquiry. But because you didn’t request the line of credit, these inquiries don’t count against your credit score. Only the inquiries you generate by applying for loans or lines of credit affect your credit score.

Types
There are two types of credit checks: soft and hard. When you check your credit report to make sure there are no mistakes, that’s called a soft check, and it does not affect your credit score. You should check your credit report often to make sure it accurately reflects your credit history. A hard credit check is when you request a loan or a line of credit from a company.

Significance
Because applying for a loan results in an inquiry on your credit and lowers your credit score, you should apply only for loans you need. If you are buying a new home or car or are applying for student loans, you should shop for the loans within a certain time frame. The credit bureau understands that you need to compare rates to get the best deal on a new home, car or other major purchase, so the multiple inquiries for one purpose are counted as one inquiry.
For example, if the credit bureau sees that five mortgage companies checked your credit over a period of 30 days, the bureau assumes you are applying for a new home loan and will count this as one inquiry. Make sure to do your loan shopping within a 30-day period to avoid lowering your credit score.

Benefits
If you understand that credit card inquiries negatively impact your credit score, you might think twice before applying for that credit card you don’t really need. Without this check in place, some people might take all the credit cards they’re offered and not have he credit they need when it’s time to buy a new car, home or other major purchase.

Warning
Many department stores and other companies entice people to apply for their credit cards by offering free gifts or a percentage off that day’s purchases. Unless you need the department store credit card, avoid applying for credit to get the gift. Frequently applying for credit cards makes the credit bureaus think you are trying to obtain a lot of credit, and this will lower your credit score even if you do not use the credit cards.

The FHA issued a new policy on May 11, 2009 regarding the 2009 First Time Homebuyer’s Tax Credit and down payments on FHA loans. For a time after the intitial press release from the Department of Housing and Urban Development, it appeared that home buyers interested in FHA mortgages could get a short-term “bridge loan” to let them take advantage of their 2009 First Time Homebuyer’s Tax Credit. This would let FHA borrowers use the loan as a down payment on their homes. But since the initial May announcement, the rules have been revised again and much confusion was the result.

In short; the 2009 First Time Homebuyer’s Tax Credit, known to some as the Obama Tax Credit or the Obama First Time Homebuyer’s Tax Credit, lets those buying their first primary residence to get a tax break up to $8000. The tax break can only be claimed for purchases made in the 2009 tax year and is paid after the home buyer has filed an income tax return for 2009.

The first round of new FHA rules appeared to let banks offer bridge loans to borrowers so they could use their IRS money as a down payment on an FHA home loan. But further investigation into the rules uncovers a law forbidding banks from offering down payment assistance; these bridge loans could be interpreted as down payment assistance even though the loan is simply to cover the amount of an income tax refund the home buyer would get anyway.

Additional guidance was issued by the FHA at the end of May. The revised rules state FHA home loan applicants can still apply for these bridge loans, but the loans cannot be used to meet the FHA’s minimum 3.5% down payment. The money can be used for other expenses or be paid on top of the required down payment; and putting an additional $8000 down on your FHA mortgage beyond the required 3.5% is a good thing. Imagine the reduced interest payments and the money saved over the lifetime of the loan. FHA loan applicants are also allowed to use the bridge loans to pay for closing costs, up front interest payments or other expenses related to closing the deal on an FHA home loan.

For FHA lenders and borrowers alike, May was a very confusing month, but the FHA seems to have sorted out the mess. The rules are clear now–bridge loans are permitted, but the FHA’s required down payment must still come from the borrower’s own funds. According to the Department of Housing and Urban Development’s official site, FHA guidelines are designed to allow people interested in an FHA mortgage to cut their up front costs while requiring the borrower to have a personal investment in the property bought with an FHA home loan.

“In addition to the borrower’s own cash investment,” a press release at HUD.gov states, “FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today’s action permits the first-time home buyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away.”

For more information on how to apply for a bridge loan towards your expected 2009 First Time Homebuyer’s Tax Credit, ask your FHA-approved lender to explain the process.

When you decide to apply for an FHA refinance loan, your lender may have a look at your credit rating. This is a source of stress for many, especially those who need to refinance because they risk default or foreclosure on ARM loans or non-FHA loans with variable interest rates.

Did you know that FHA refinancing loans are more forgiving when it comes to your credit rating? Most refinancing programs designed to save homeowners from foreclosure take into account what’s happened to thousands of American homeowners during the housing crisis. Your credit rating may be affected by current conditions, but if you have an overall pattern of reliable payments, you shouldn’t worry about being disapproved for an FHA refinance loan.

Do you have a more serious problem on your credit report? The FHA loan approval process for refinancing does take into account extenuating circumstances such as an on-the-job injury, illness or other situation that may have prevented you from paying on time. Don’t assume you aren’t qualified just because you have a period of non-payment or collections against you.

Come to the FHA refinance table prepared with a written explanation of what happened to damage your credit rating and submit it along with your paperwork. That can make quite a difference when the loan officer examines your past credit history and compares it to your current circumstances. If you need such a letter, be sure to include any supporting documentation including hospital bills from an extended stay or other evidence that supports your claim.

FHA lenders are quick to point out that a few missed bill payments on a credit report don’t necessarily indicate you are a bad credit risk, but one area where missed payments creates the most trouble for borrowers is on the mortgage itself. You must be current on your existing home loan. There must be no missed payments for 12 months prior to your FHA refinance loan application.

This “paid up” requirement also applies to what bankers call “judgments” and other collection activity against you. If you are not current on your other bills or have collection agencies to deal with, take steps you need to get caught up before filling out your FHA Refinance application. You don’t have to be paid in full, but you do need to be in agreement with your creditors on repayment.

Like any VA home loan, FHA mortgage or refinancing application, it’s important to prepare your credit as much as possible before you apply. In addition to your credit rating check, an FHA mortgage lender will also need to check your debt-to-income ratio.

You can take steps to reduce your debt-to-income ratio by paying off small amounts on credit cards and closing credit card accounts you don’t need. Don’t apply for other lines of credit when you are trying to get an FHA mortgage refinance application approved. Any potential debt may count against you when applying for a mortgage; keep that potential debt as low as possible for best results. Start work on your debt-to-income ratio the moment you decide to apply for an FHA refinance option. The sooner you start cutting down the debt, the better.

FHA refinance loans are worked more personally than other home loan products. Work closely with your loan officer, and never assume that you aren’t qualified—give yourself a chance to work with the system and you could find yourself in more affordable mortgage payments and a lower interest rate in no time. If you want to get into an FHA refinance loan but your current lender is not responsive to your needs, you don’t have to refinance with the same bank. You can always use a new lender willing to work with you.

Whether you are applying for an FHA loan to get your first home, seeking an FHA cash-out refinancing mortgage or an FHA refinancing loan, there are certain rights and protections you should be aware of before closing the deal.

The most important right you have in any financial transaction is to know the specific terms and conditions of the paperwork you’re signing. If you need help understanding the terms of your FHA home loan, HOPE for Homeowners refinancing, an FHA refinancing loan or any other product, ask your lender to explain the terms in as much detail as you need.

You should never be rushed into signing an agreement for an FHA home loan. Do you fully understand the conditions of your FHA mortgage? There are a number of typical questions many ask:

* Who pays the closing costs?

* What is the total amount due every month on my FHA mortgage?

* What are “points”?

* What happens if my FHA mortgage payment is a day or two late? Is there a grace period?

* What may cause my FHA mortgage to go into default? Foreclosure?

* What is the actual cost of my FHA home loan above the amount I am borrowing for the house?

You should have the answers to all these questions and more. Your lender can assist you, but you may need to make an appointment to discuss the answers fully.
In addition to making a fully informed decision about your FHA home loan, you should also be aware of your rights under the Fair Housing Act. No homebuyer can be refused a loan or purchase on the basis of race, creed, or other discriminatory practices.

Most people understand these basic rights under the Fair Housing Act, but there are other rights which apply to all borrowers, whether you apply for an FHA-approved home mortgage or any other type of loan. Did you know it’s against federal law to prohibit reasonable modification of an existing home to accommodate disabilities? A housing provider or homeowner’s association that tries to block or disapproves reasonable structural repairs or modifications is in violation of HUD and Department of Justice laws.

If you have been approved for an FHA cash-out refinancing loan to make your home wheelchair accessible, for example, you can’t be denied any reasonable alteration to create that accessibility. Homeowner’s associations that have covenants restricting such modifications are in violation of the law.
Before you decide to apply for an FHA mortgage or FHA refinancing loan, there are questions to ask if modifications or repairs are needed to make a home accessible.

* If you pay for the modifications yourself, how will the cost affect your debt-to-income ratio?

* How does the modification affect the resale value of the home?

* Does the home need to be reappraised after accessibility modifications are made?

Not all FHA loan products are affected by these kinds of modifications, but some are. If you have an FHA Hope for Homeowners refinance loan, changes to your property may affect the resale value. When you decide to sell or refinance, the amount of money you pay back to the government under the HOPE equity sharing program may change depending on how such modifications changed the resale cost.

If you are applying for an FHA cash-out refinancing loan to fund your modifications, you may be turned down if you don’t meet the right income or debt-to-income ratio guidelines. In these situations, the reasons for the loan are not the issue, but rather the eligibility for the FHA loan. There’s no discrimination present if you don’t meet the requirements; credit counseling and assistance programs are available to help borrowers assess their creditworthiness before applying for an FHA cash-out refinance loan.

Reputable lenders don’t discriminate, but sometimes the actions of a few can create the impression that there’s no recourse regarding practices or activities that violate the Fair Housing act. If you suspect your rights have been violated, contact the Department of Housing and Urban Development at 1 800 669 9777, and the Department of Justice at 1-800-896-7743.

When first time homebuyers start looking for a house to purchase with an FHA home loan, there are many details to sort through; appraisals, interest rates, closing cost considerations and much more. One important factor in the cost of any home that should not be ignored? Property taxes.

When you buy a home with an FHA loan, many of your costs are immediately explained. Your closing costs and FHA mortgage interest, for example—you’ll know what these expenses can add up to before you sign on the dotted line. But property taxes shouldn’t be very far down your list of concerns; you should know what your tax liabilities are on any property before you commit to the purchase. The amount of property tax you pay might not be a deal breaker on the house of your dreams, but property taxes should be considered in any budget.

HOW DO I LEARN WHAT MY PROPERTY TAX LIABILITY IS?

When you are pre-approved for an FHA home loan and looking for a property to buy, you can get a very good idea of what your potential property tax bill might be simply by checking the listing on the property you want to view. Many times last year’s tax information is included along with other important information on the real estate listing. If it is not published, ask the seller to give you the amount he or she paid last year or have them show you their property tax bill. It’s important to understand that taxes do change; last year’s payment might not be indicative of this year’s liability. A bit of research will show whether local amendments or recent legislation might have raised the amount you could owe this year on a given property.

DO NEW HOMES HAVE HIGHER PROPERTY TAXES?

Older homes often have lower property taxes than newer ones. The trade off with buying an older home with an FHA loan often comes with repairs and upkeep issues. How old is the roof on the home you want to buy? Do you know how much it will cost to repair or replace the roof when the time comes?
Buying an older home as a fixer-upper is great for those who have the skills to do so, but if you need to hire a team to do the work for you, you may wish to consider the pros and cons of buying an older home versus using your FHA home loan to buy a newer, less maintenance-intensive property. The costs of upkeep might offset any savings you find in property taxes with some older homes.

ARE THERE ANY OFFSETS TO MY PROPERTY TAXES?

Many people new to purchasing a home are surprised to learn they can deduct the interest from the FHA mortgage on their federal income taxes. The amount of money you spend on property taxes may or may not be offset by such deductions—it all depends on your specific situation, but you can learn a lot by asking a real estate professional about how to help yourself at tax time by taking the right deductions allowed by law connected to your FHA mortgage and status as a property owner.

Property taxes should always be figured into the final cost of purchasing a home. Know how those taxes can affect your bottom line–prepare for them in the same way you make allowances in your budget for the primary amount of your FHA loan, the interest, and any mortgage insurance you might carry. Divide the total amount of your property tax liability by 12 and save that amount of money each month to prepare for tax season.