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CreditXpert™

This week I was able to show a client how to bump their credit score by 47 points.  This is incredible because they did not need to do anything illegal like disputing accurate negative entries on their credit report. 

Two simple moves bumped them to the top credit tier.  The figures below are the scores before we did anything.  Notice the score from Experian was 723 and 696 from TransUnion. We use the middle score when underwriting the loan application so the score is 696.  

          Equifax  680

          TransUnion  696

          Experian   723

The reason this is important is because of the hits to either closing cost or interest rate is substantial when the loan amount is $200,000.

The chart below shows the adjustments on conventional loans.  The loan officer doesn’t have a choice, the adjustments are applied or the loan will not close.  In my shop these adjustments are automatically applied by the system based on the information in the application. The loan officer can not ignore them because they automatically become part of the loan application.

Conforming Loan Adjustments CreditXpert™

 

Notice the credit score column on the left side, the top tier begins with a score of 740.  Borrowers with a credit score from 740 up will receive the best combination of interest rate and closing cost.

We began with a 696 credit score and were pricing an 80% loan to value.  The hit would have been 1.75.  This is not an increase in interest rate  but rather an actual hard dollar increase in closing cost based on the loan amount.  If the closing cost added up to  $2,000 before the adjustment, this bump would have added another $3,500. ($200,000 x 1.75% = $3,500)

The client’s closing cost would have jumped from $2,000 to $5,500!!!  That is huge!

Important!

Some people want all of the details; others just want to get the ball rolling.  If you want to tweak your credit scores there are four ways to begin:

Fill in the information in the Online Application

Print and complete the Quick & Easy Form

Over the phone, call (502) 753-4127

In person, set an appointment by calling the number above or fill in the request form at the bottom of this page.

 

Most loan officer do not discuss the hard dollar option, but simply offer a higher interest rate instead.  That is the second method of covering the adjustment, you can use either method or a combination of both.

Let’s find out how the second option works by looking at an actual interest rate sheet from earlier this week.

 Sample From Rate Sheet CreditXpert™

 

Mortgage lenders are “selling” money.  This is a (not recent) screen shot for a 30 year fixed rate, the rates are in the left column and the prices are on the right side.  An interest rate of 3.875% is priced at 100.1049 before any adjustments, 100 would represent a full price called “Par” requiring no points or origination fees.    Our client’s credit score would require 1.75 (points) added to the price so in order to not pay points he would get an interest rate of 4.375% in order to cover the points.  The 4.375% interest rate is priced at 102.160 which is more than enough to cover the 1.75 adjustment.

Our client could pay roughly an extra $3,500 and get the 3.875% rate or pay no points and get a rate of 4.375%.

Bumping the credit score to 743 drops the adjustment from 1.75 to 0.25 a very big improvement.  Notice 3.875% already has an extra .1049 to much built into the price.  Our new hit of .25 would be reduced, .25 – .1049 = 0.1451   

Yes, the 1.75 would also be reduced by the same amount but it would still cost 1.75 – .1049 = 1.6451, and that is still a big number, over $3,200 on a $200,000 mortgage.

But most home buyers aren’t even aware there are two ways to address the credit score adjustment.  The loan officer simple gives them the higher interest rate.  Why?  I suppose it is easier to explain.  

 How The Second Method Cost The Buyer

Even if given a choice by the loan officer many buyers would not have the extra money to pay points in addition to the down payment, closing cost and escrows for taxes and insurance.  They would opt for the higher interest rate by default.

Here is the math comparing the monthly payments:

$200,000 @ 4.375% for 30 years = $998.57

$200,000 @ 3.875% for 30 years = $940.47

$998.57 – 940.47 = $58.1 per month difference 

Over 30 years equals:

$58.10 x 360 = $20,916.00

That is a big number! 

It is either $3,200 on the front end or almost $21,000 over the life of the loan.  Do credit scores sound more important in light of those numbers?

Something Very Important

I have taken umpteen classes regarding credit reports and credit scores, personally reviewed tens of thousands credit reports and learned something running this report I have never heard of before. This is an indication how complicated the matrix really is that compiles the scores.  All of the classes and independent research I have done in the past made it sound a lot simpler than it really is.

Here is one suggestion from CreditXpert™ regarding the TransUnion score:

Suggestion from TransUnion CreditXpert™

 

HOW CRAZY IS THAT?  In all of the years I have been doing this I have never heard that one before.  I knew (thought I knew) the ratio between the limit and current balance could have either a positive or negative impact.  But the suggestion above indicates that TransUnion aggregates all of the revolving accounts and calculates an additional ratio based on the totals!!

And look what an impact it has, 34 points! 

All the more reason for both buyers and sellers to prequalify well in advance of making a move.  Once you find a home the clock starts ticking quickly.  There may not be enough time during the escrow period to save twenty grand or more.

 

Need  CreditXpert™?

Visit my online application site or print and use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

 

 

 

 

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