Auto Insurance and Your Credit Score

The North Gilbert Breeze recently had a very good article written by Keith R. Nelson, an associate at Rowley Chapman Barney & Buntrock, Ltd. The article appeared under the “Law Talk” section and discussed how not having Medpay in your automobile insurance can adversely affect your credit rating should you be involved in an automobile accident. Keith cites the manner in which insurance companies are stalling in making payments on claims in this difficult economy. What this does is then cause you to have to pay for your bills up front as you wait for your insurance company to send you the payment. Well, if you can’t cover these costs in a timely manner then it can severely affect your credit. The solution is to sign up for Medpay in your coverage. Here is how he explains these concepts:

Medpay is coverage that provides money upfront to help pay accident related medical expenses, co-pays, and other non-covered out-of-pocket medical expenses resulting from an automobile accident. Along with providing immediate payment to medical providers, medpay also provides the peace of mind that credit ratings will not be ruined simply because of an auto accident. If you have recently cancelled your medpay coverage or have never had medpay, please contact your automobile insurance provider for a price quote.

Check out the full article for more information.

Min. Credit Score Set at 620 for FHA, VA Loans

There are some major changes going into effect very soon regarding credit score requirements on FHA and VA loans. It used to be that on these loans you were able to qualify even if your credit score was below 620 – well it is becoming  apparent that more and more lenders are moving away from this. In fact over the  past few days I’ve received emails informing me that the major banks (Citi, Wells Fargo, Countrywide, Chase)  will not make any exceptions to the 620 rule moving  forward.

This means, you must have a minimum of a 620 credit score in order to be considered for a FHA or VA loan. Below are  highlights of the changes which  will be going into effect in the next few weeks:

  • The minimum credit score for FHA/VA loans will be 620 for all purchases, re-finances  and streamlined refinances.
  • Non-Traditional credit may not be used for creating a credit profile. This  applies to all transaction types. Non traditional credit is where you use the  most recent twelve month history on accounts such as utility bills, cell phone  bill, insurance bills to develop a credit profile of a borrower.
  • Non-traditional credit is not entirely out the window. It may be used when the borrower has an acceptable credit score but has less than 3 active credit lines during the past 12-24 months. So, if you only have had a good history with only two credit cards in the past while then we can use your non-traditional credit to supplement the report. However, keep in mind your credit report  must still contain a credit score of at least 620.
  • Streamlined refinance applications must contain a tri-merged credit report with credit scores. A tri-merged report is one where all three bureaus report a credit profile. It is then merged into one report. In the case of two borrowers on an application each borrower must have a credit score meeting this requirement.
  • Borrowers will now no longer be allowed to pay additional fees to offset credit scores lower than 620? In other words the line pretty much ends at 620. There are no exceptions available and no loan pricing adjustments that can lower the credit score requirement.

For those not familiar with some of the terms used in this post, below is a set  of previous blog posts which can help you understand it better:

Non Traditional Credit: Still operating in the cash economy?

Many loan programs offer what is known as “traditional credit” to replace a credit report. Traditional credit requires rigorous documentation and much effort from the borrowers part. To establish traditional credit the borrower will be required to furnish proof of good standing with four different creditors. Monthly rent paid is automatically counted as one of the four, in essence only three more are required. These three creditors can be utility companies, telephone companies, and any other installment type credit programs.

Read More…

Top Five Credit Misconceptions

The East Valley Tribune published a very informative article yesterday on the top five credit (and debt) misconceptions. According to the EVT (citing Transunion), the top five credit misconceptions are:

Read More…

What Makes Up the FICO Score?

Below is a pie chart that answers a very common question I receive.

What Makes Up the FICO Score?

Read More…

FHA Mortgage Insurance Rates Now Risk Based

Major changes go into affect on the FHA loan program on Monday July 14, 2008. These changes are very significant and will impact the affordability of these loans for many borrowers, especially those will less than stellar credit who can’t put 5% down. Basically, almost everybody in todays market.

Essentially, the Upfront Mortgage Insurance Premium (UFMIP)and monthly Mortgage Insurance IMI) will now be risk based. Even though the borrower has the option to pay UFMIP in cash upfront, it is typically financed into the loan. Bear in mind that UFMIP is not part of the regular closing costs. FHA has always charged a flat upfront mortgage insurance premium for every borrower regardless of credit risk. Until last week UFMIP on the 30 year fixed FHA loan was at 1.5%. The monthly mortgage insurance payment has also always been fixed at 0.5% for the 30 Year loan. These percentages will now change effective Monday.

UFMIP will now be charged on a risk basis, i.e., based on your credit score. It will range from 1.25% for lower-risk borrowers to 2.25% for riskier borrowers. In dollar terms this means that on a $200,000 loan UFMIP can range from $2,500 to $4,500. Remember this is on top of the closing costs and down payment already due. Since this can be financed into the loan, your final loan amount will reflect this cost. Having poor credit will now be expensive even on FHA loans.

Monthly mortgage insurance will vary from 0.5% and 0.55% and is determined by the loan to value. If you are putting less than 5% down than its set to 0.55% but if you’re putting more than 5% down it will be 0.5%. Monthly mortgage insurance is calculated by multiplying the percentage to the loan amount and dividing by twelve. So on a $200,000 loan and a MI rate of 0.55% your monthly mortgage insurance payment is $83.34.

First time home buyers who fall in the hefty 2.25% UFMIP bracket do have a way to obtain a slight reduction to UFMIP. If you are borrowing more than 95% of the purchase price (loan to value) and your credit score is below 559 then you may be eligible for a reduction in your UFMIP by 0.25% – so it would be 2.00%. However, you need to complete a HUD-approved pre-purchase counseling session. FHA will only provide the discount after you have successfully completed the course and will ask for a certificate of completion.

Additional Reading on FHA: Is the FHA Loan Program Right For Me?

Relevant FHA Down Payment Assistance related posts on other blogs:

Arizona Republic Article on DPA
Dear HUD, Stop Being a Bully
Real Estate Road Signs – “Buy A House for $500 Down”

Down Payment Assistance Programs

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.