If you’re thinking about purchasing a new home or refinancing your existing mortgage, you should know that your credit score is hugely important. In fact, it can make or break your approval and carries the most weight when it comes to determining your mortgage rate. Why are credit scores so important, you ask? Well, banks and mortgage lenders use your credit score(s) to evaluate your creditworthiness, which is essentially the best measure of default risk, coupled with things like down payment, income, assets, and property type.
So what s my score need to be, you ask? First off, every lender “sets” their minimum score requirements coupled with the Government agency that sets them. For example, FHA technically has a minimum score of 500, yet to find Banks that actually go that low is hard. Most have a minimum threshold of 580, and some even higher at 620, because statistically speaking, consumers with a lower score are more likely to default, thus setting of the minimums. Even though FHA allows Banks to lend down to 500, it doesn’t mean they have to. Same goes with VA Loans, technically the VA doesn’t even have a minimum score, they leave it to the Banks to determine “their” minimum score.
With that said, at Atlantic Coast Financial Services, we have several Underwriters that will go down to the lower scores, however with that said it’s not a given. The lower score usually means that that the loan will be “Manually” underwritten and even though FHA or VA has allowances for lower scores, the Underwriter still has to underwrite to the Guidelines as set forth by FHA/VA, which discusses things like what’s allowed and not allowed credit wise. Along with all other factors considered, like income, assets, down payments, etc will help determine if eligible. For Conventional Loans (Fannie Mae/Freddie Mac), typically the target score is 620. With these loans, its basically a computer approval or nothing, Banks do not manually underwrite. There have been occasions where we have seen scores below 620 be approved, but those cases are rare. For USDA Loans, technically there is no minimum like VA, however, USDA looks heavily upon the last 3 years credit history. So reasonably thinking if the credit rating in the last 3 years is good, your score should be acceptable for USDA loans. The automated computer approval system typically looks for scores for 640 and higher, but we have been able to manual underwrite these files down to 580 with compensating factors.
Down payment requirements are typical associated with the Type of loan you are looking for. For example, for VA and USDA loans it’s no money down, 100% financing. For FHA its 3.5% down payment and for Conventional Loans such as Fannie Mae and Freddie Mac it’s as little as 3% for lower income consumers and 5% otherwise. Keep in mind however, the down payments of either 0% down to 5% down do not address loan closing costs and escrows. Those will need to be paid by either the Buyer or Seller or even the Lender with a "NO" closing cost option loan program.
Interest rates are determined by several loan factors and loan types. Easiest to understand is Credit Score which affects all loan programs. The lower the credit the more risk the Bank takes on, thus the higher the rate and vice versa, higher scores = better rates. But also, there is also many other things that will cause your rates to be higher or lower, for example things like, loan purposes, Loan to Value ratio’s, existence of private mortgage insurance or not, occupancy types, such as primary residences, second homes or rentals all affect rate determination
At Atlantic Coast Financial we DO NOT get paid by interest rates, we have NO interest in selling you a higher rate for more compensation. Rates are determined by daily market conditions and what the bank sets forth that day and time, coupled with such factors as mentioned above.
At Atlantic Coast, we provide residential homes loans on all types of properties, such as Stick Built Homes, Condo’s, Townhouses, Modular Homes, and Manufactured Double Wide on permanent foundations. We do not currently do Single Wide mobile homes nor do we lend on Raw Land/Lots.
To get started, the quickest and easiest way is to call us at 910-791-1337 to discuss loan options and scenario’s. You can can also fill out the Request for More Information Link on our website and a representative will call you in a timely manner.
Again as stated, each loan is different, from the consumer to the loan type. Typically with that said, we try and ask for as much upfront as possible, therefore if an Underwriter asks we typically have it in the file, and keep requests for additional documentation to a minimum. With that said, we look for:
- 2 recent pay stubs from employers
- Last 2 years of W2’s or 1099’s from all jobs held
- Last 2 years of Federal Tax Returns
- If Self Employed, Last 2 years of Business Returns
- Last 2 months of Bank Statements
- Last 2 months or Last Quarterly Statement from Retirement or Stock Accounts
- Copy of Award Letters from Social Security or Retirement (if Applicable)
- Copy of Drivers License or Valid ID
Note: Each borrower we work with is different and has different circumstances, so additional documentation not listed above may be required, BUT the above list is a very good start.
In one simple word, YES. In today’s lending environment, currently Banks typically require that you prove your income in the form of Pay-stubs, W2’s and Tax Returns, side jobs paid "off the books" cannot be used. Assets used for qualifying purposes need to proven also. Assets typically need to be "seasoned" for a period of 60 days or more. Monies or Cash held in Safe Deposit Boxes or Home Safes cannot be validated. Also with that said, in regards to assets, any unusual large deposits, need to verified from an acceptable source.
Start by calculating your debt‐to‐income ratio. Add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out. Lenders use the ratio to measure your ability to manage the payments you make every month to repay the money you have borrowed. Example:
Gross monthly income = $5,000
Gross monthly debt = $1,850 which includes::
Mortgage = $1,300, Auto loan = $300, Credit Cards = $150, Personal Loan = $100
Debt‐to‐income: $1,850/$5,000 = 37%
The three national credit bureaus (Equifax, Experian and TransUnion) capture, update and store credit histories on most U.S. consumers. Most estimate the risk a company incurs by lending you money or providing you with a service – specifically, the likelihood you will make payments. Your score is used by a lender to help determine whether or not you qualify for a mortgage, credit card, loan or service. The higher the score, the less risk you represent to a lender. Put simply, the higher, the better. To receive a copy of your credit, the Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or have filed for bankruptcy.
You can order your free annual report by visiting the website below, calling the toll-free telephone number, or by mail through the mailing address below.
Call: 877.322.8228 or
Complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
The difference between a mortgage interest rate and an annual percentage rate is that a mortgage interest rate is a cost you pay each year to borrow money for a mortgage. An annual percentage rate reflects the mortgage interest rate and other charges.
There are many costs associated with taking out a mortgage. These include:
- The interest rate
- Other charges
The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.
An annual percentage rate (APR) is a broader measure of the cost to you of borrowing money. The APR reflects not only the interest rate but also the points, mortgage bank fees, and other charges that you have to pay to get the loan. For that reason, your APR is usually higher than your interest rate.