Financing and Mortages
YOUR GUIDE TO FINANCING A HOME
As a newcomer to the New York City (NYC) region, you may be familiar with the home-buying process. Even so, it’s helpful to review all the steps involved as well as area resources and conditions. With a relatively large real estate market, finding the right type of mortgage for your home is made simple by the abundance of property choices available in the area. While the metro NYC housing market currently is showing signs of recovery, the market has been known to fluctuate heavily, especially within the last 10 years. Real estate conditions in NYC collapsed in late 2001 after the September 11th terrorist attacks and again in 2007 when the recession swept through the nation. However, today with the proper research and the help of a reliable real estate professional, purchasing your NYC home should be a rewarding experience.

NAVIGATING THE FINANCING PROCESS
As you prepare to purchase a home and seek financing, it is best to first have a realist view of the all the steps involved. The financing process can take anywhere from 15 to 45 days, but typically runs 30 days. Your agent should be involved throughout the process to help it run smoothly. The basic timeline for what will happen along the way is as follows and is covered more thoroughly within this chapter.
  • You submit the completed 1003 application and any required supporting documentation to the lender.
  • The lender orders an appraisal of the property and your credit report and begins verifying your employment and assets.
  • The lender provides a good-faith estimate of closing and related costs, plus initial Truth in Lending disclosures, which by federal law must be provided by your lender within three days of first pulling your credit report.
  • The lender evaluates the application and your supporting documents, approves the loan and issues a letter of commitment.
  • You sign the closing loan documents and the loan is funded.
  • The lender sends its funds to escrow.
  • All appropriate documents are recorded at the County Recorder’s Office, the seller is paid and the title to the home is yours.

HOW IS YOUR CREDIT?
Before you even begin applying for a mortgage loan, you’ll need to evaluate the state of your credit. There are three major credit-reporting agencies in the United States that maintain records of your credit usage: Equifax®, Experian® and TransUnion®.

These records are called credit reports, and lenders will check your credit report when you apply for credit. Generally, lenders also will want to know your credit score. A credit score is a number that summarizes your credit risk, based on a snapshot of your credit at a particular point in time. A credit score helps lenders evaluate your credit and estimate the risk of lending to you. By reviewing this report beforehand, you can identify any issues that due to fraudulent activity and work toward correcting them.

National Credit-Reporting Agencies
To request a free copy of your credit report once a year, call (877) 322-8228 or visit www.annualcreditreport.com. For more information on credit reporting, visit the Federal Trade Commission Web site at www.FTC.gov.

FICO Scores
The most widely used credit scores are FICO® scores, created by Fair Isaac Corporation. Lenders can buy FICO scores from all three major credit-reporting agencies. Lenders use FICO scores to help them make billions of credit decisions every year. Fair Isaac Corporation develops FICO scores based solely on information in consumer credit reports maintained at the credit-reporting agencies.

Your credit score influences the credit that is available to you and the terms (e.g., amount, interest rate) that lenders offer you. Understanding your FICO score is a vital part of helping you manage your credit health. By knowing how your credit risk is evaluated, you can take actions that may lower your credit risk, and thus raise your credit score, over time.

Why Do You Want a High FICO Score?
According to Fair Isaac Corporation, the difference between a credit score of 620 and 760 often can mean tens of thousands of dollars for the life of your loan. A low score can cost you money each month or even stop you from refinancing at a rate you know other people are getting.

How Are FICO Scores Calculated?
Different credit data are collected to determine your credit score. These data can be grouped into five categories weighted at different percentages, which reflect their importance in determining your FICO score. The five categories include payment history, outstanding credit, length of credit history, new credit acquired or applied for and types of credit used.
  • Payment History: The first thing any lender wants to know is whether you have paid past credit accounts on time. This is considered the most important factor in a FICO score, accounting for approximately 35 percent. Activities that impact this negatively include bankruptcy, liens, wage garnishments and delinquency (past due balances).
  • Amounts Owed: Number of accounts you hold with balances represents approximately 30 percent of your FICO score. Note that even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
  • Length of Credit History: In general, a longer credit history will increase your FICO score. However, even people who have not been using credit long may get high FICO scores depending on how the rest of the credit report looks. Credit history accounts for approximately 15 percent of your FICO score.
  • New Credit: Many factors of new accounts impact the FICO score. It considers how many new accounts you have by type of account, how long it has been since you opened a new account and how long it has been since credit-report inquiries were made by lenders. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a FICO score over time. Your new credit accounts make up 10 percent of your FICO score.
  • Types of Credit Used: Approximately 10 percent of your FICO score is based your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Your FICO score also takes into account the kinds of credit accounts you have: Have you had both revolving and installment accounts or has your experience been limited to one type? It also considers your total number of accounts and how many of each kind. The appropriate number varies depending on an overall credit picture.

According to Fair Isaac Corporation, a FICO score takes into consideration all these categories, not just some of them. Lenders also look at other factors when making a decision, including your income, how long you have worked at your present job and the kind of credit you are requesting.

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