Sunday, March 24, 2013

Buying home doesn’t require perfect credit - Military Money, Navy Money, navy pay, pay charts - Navy Times

Buying home doesn’t require perfect credit - Military Money, Navy Money, navy pay, pay charts - Navy Times



Buying home doesn’t require perfect credit


By Dave Peters - Special to the Times
Posted : Tuesday Nov 28, 2006 18:17:21 EST
Being a homeowner can help make you a multimillionaire or it can crash you into bankruptcy, foreclosure — or worse — or somewhere in between.
Hurray for how easy it has become for people to buy their first home, and shame on the lending industry for making it too easy to take cash out of home equity.
It is vital that you buy your first home. Properly managed and in the right location, your first home can be your best investment. When most people retire, the equity in their home is by far their greatest asset. Equity is the difference between the value of the home and any loan amounts still owed on the property.
It used to be that the only “no money down” loans available were through the Department of Veterans Affairs. Now, hundreds of lenders offer 100 percent financing. The difference: VA home financing is fairly flexible with regard to your credit.
With the VA, usually only your 12 most recent months must have perfect credit. Two years’ perfect credit after a bankruptcy is acceptable, though I have closed VA loans 18 months after a bankruptcy. Further, those without an established credit history may not be denied a VA loan.
VA lending does not consider credit scores. Other 100 percent financing requires 580 as the minimum middle credit score (there are three credit scores), so VA is the only 100 percent loan for those with 12 to 24 months of perfect credit, but with scores below 580.
VA loan rates are attractive when compared to most other 100 percent programs, but — and this is a big one — the VA has a 2.15 percent “funding fee.” On a $200,000 loan, this fee is $4,300 and comes out of your pocket.
The VA funding fee is equal to 2.15 “points,” and if you applied 2.15 points to many non-VA loan programs, you could get a rate that’s competitive with VA. Paying these points is called “buying down the rate.”
With ethical lenders, paying more points equals a lower rate, and no points means a higher rate. I sometimes give borrowers a higher rate and points (cash) with their permission; they then pay closing costs. It is called a “rate buy-up.”
Another method of getting cash to close home loans is convincing the home seller to pay some or all of the closing costs. Let’s face it. Usually, sellers are not giving you anything. In this case, the price of the home is raised above what it would have sold for and you are “given” cash to close. That is what I meant when I stated that the VA funding fee — and other closing costs — really come out of your pocket.
Mortgage lending is almost as complex as a nuclear submarine, so let’s go left full rudder and discuss credit scores and refinancing one’s home without causing serious financial damage.
Home refinance depends mostly on credit scores. Lower scores mean higher interest rates. Higher rates can cost you hundreds of thousands of dollars over your lifetime.
For every 20 points that your credit scores go up, you qualify for the next best mortgage rate. Borrowers who raise their scores 25 to 80 points in a couple of months may qualify for rates as much as 1.5 percent lower. On a $200,000 home loan, the better rate saves $70,000 over the life of the loan.
Credit score increases of 150 points are possible in a six-month period. You have to do all the right things and none of the wrong ones. The same is true with owning a home and building wealth.
Dave Peters is a semiretired loan officer and credit repair specialist. He is a trustee of the nonprofit organization Credit Learning Systems, which teaches college students about credit and debt. E-mail him at creditmatters@atpco.com.