Qualifying for a home loan

August 22, 2008 12:00:00 AM PDT
Buying a home is not what it used to be back in the good old days -- like nine months ago. The process is more complicated and the buyers must jump through more hoops. Certified mortgage planner Serena Kokjer Greening helps us to understand the process.

Serena Kokjer Greening's advice:

Credit scores

  • 720 is the new 680, and 740 and 780 are rewarded with better rates
  • Lenders credit scoring grid the most stringent
  • You can raise your scores with some work

Down payment

  • If you want the lowest rates, prepare to have a down payment of 20% -30%.- the days of nothing or 5% down are gone. (FHA loans still allow for 3% down- but many do not qualify for them and they are more expensive to obtain)
  • Some lenders consider California to be a state with declining home values, and want 5% more put down. This can vary by county.
  • Need to have sufficient liquid assets to cover down payment, closing costs and reserves after closing.
  • If you do not have at least 20% down, be prepared to pay mortgage insurance with your monthly mortgage payment.

Income qualification

  • Most lenders want a debt to income ratio no higher than 40% of gross income
  • To substantiate your income, show paystubs and W-2's and or tax returns
  • If you cannot substantiate your income and must be a stated income borrower, you will need a large down payment, Very high credit scores, and substantial liquid assets.

Other changes

  • No more little or no down payment
  • Very few lenders allow stated income loans
  • Few equity line or second mortgages available
  • Rates on loan amounts over $729,750 - true jumbo loans, are substantially higher.

Overall information about improving your credit report:

1. You should have at least 4 open accounts with current activity. If you do not have them, try to open them, but not all at once.

2. Lenders look at the lowest middle score of two borrowers.

  • Scores over 740 get the best interest rates. Over 700 is satisfactory.

3. If you have derogatory items on one of your accounts, call the company and ask them to remove your late payments- here is a strategy to try:

Call their customer service number (usually on the credit report) and give them a really good excuse for the late payments, and ask them to remove them from your credit report. If they say "yes," ask them to fax you a copy of the letter they will be sending to the credit bureaus. You can give them my efax, 415-480-1684, or have them fax it to you and then you can fax it to me. If they say "no", thank them and call back the next day. You will most likely talk to a different person, and your chances improve. One of my clients called one credit card company four different times before they agreed to remove the late payments. His scores popped up and his interest rate on his refinance was much better than it would have been. Here are some excuses some of my clients have use successfully:

  • I was traveling, and the bill had not arrived when I left on my trip.
  • My bookkeeper was confused with the due date and mailed it late.
  • My wife, father, child, etc was sick and in the hospital, and I got behind in my paperwork as I was spending so much time at the hospital.

Don't be discouraged if you get turned down on your first or second phone call.

4. The next area for improving your credit score is the balance on your credit cards. Your scores will increase if you use only 25% of your available credit. This can be accomplished in many ways:

  • Ask your existing credit companies to raise your limit
  • Move some balance to open account, but keep the overall balance at about 25 -33% of the available balance Ask your existing credit companies to raise your limit.
  • Move some balances to open accounts, but keep the overall balance at about 25 -33% of the available balance.
  • Pay down certain accounts more than others to keep the balance at the 25 - 33% goal.

Additional Ideas to improve your credit scores

Review your credit report and correct any errors you find. Getting rid of inaccurate (and bad) information can sometimes improve your score.

Advice used to be given to close old and unused credit card accounts in order to reduce your "potential" available credit (which could change your debt ratio after you've been approved for a loan). Now, however, the ratio of your debt to your credit limit is more critical, so closing old accounts only raises that ratio - which you don't want to do. Some people have moved debt from several credit cards to one card and then closed the old accounts. Since creditors look at the debt-to-credit limit ratio this can have a bad affect on your credit score because you have the same amount of debt but less available credit. So don't close old credit card accounts just because you're not using them. Creditors also now look at the average age of your accounts so, again, keep those old accounts.

Pay your bills on time. (This is probably the most important of all!)

Don't let anyone make an inquiry on your credit report unless you absolutely have to. The more inquiries, the lower your score.

Read the fine print on ZERO interest accounts-be sure they do not tack on the interest later.

Also, remember that some improvements -- such as better efforts at making payments on time -- may take time to impact your score. So, time is also a factor.

The key is to get credit only when you need it, and then use it carefully, make your payments on time, and keep your balances low. Remember not to max-out credit cards.

For more information, visit www.serenagreening.com.

About Serena Kokjer Greening:
Serena Kokjer Greening is a Certified Mortgage Planner who specializes in residential and commercial mortgages for properties in the entire state of California. Serena enjoys working in partnership with real estate buyers to help them realize their dream of home ownership. She takes pride in crafting financing plans that fit each customer's unique needs. Headquartered in San Francisco, Serena meets the challenges and unique financing needs that face borrowers, including the financing of lofts, condominiums, co-ops and "tenants in common," as well as specialized programs for buyers who have small down payments or poor credit.

For the past three years, Serena was at Triton Funding Group where she was a member of the Chairman's Circle, the top tier of production recognition in the company. In December 2007, Serena joined Guarantee Mortgage SOMA office. Serena holds both a Real Estate license from the California Department of Real Estate (obtained in 1999) and a Life Insurance License from the California Department of Insurance, (obtained in 2006) . She is a member of the Woman's Council of Realtors, National Association of Mortgage Brokers, and California Association of Mortgage Brokers. She is a proud supporter of EARN, www.sfearn.org a San Francisco organization that helps families save money for a down payment on a home -- where she is on the leadership council, and Achieve, www.achieveprogram.org ., a San Francisco organization that provides scholarships to high school students in San Francisco, where she employees an intern each summer. She is a trustee of her alma mater, Pine Manor College, Chestnut Hill, MA., ranked by US News and World report the most diverse liberal arts college in the US for the past 5 years.

Prior to becoming a certified mortgage planner, Serena headed technology, marketing and merchandising departments for a Fortune 500 retail company, where she was the first woman corporate officer in their history. Her other jobs have included several Internet Start-up companies and an International Retailer.

Serena and her husband, Bob live in San Francisco. Prior to returning to San Francisco in 1996, they lived in Southern California for 10 years. In her spare time, she can be found on the tennis court, in the swimming pool or cheering for one of her 11 grandchildren at their chosen sport or activity.


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