Scoring your Credit - How's your FICO?

In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800, with higher being better. Typical home buyers likely find their scores falling between 600 and 800.   FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not much. Since the score is base on a lifetime of credit history, it is difficult to make a significant change in the umber with quick fixes. The most important thing is to know your FICO score and to nsure that your credit history is correct. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let's you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you.

Many of our clients have used one of the local agents featured below.

 
Scott E. Ractliffe
Pinnacle Financial Partners
(615) 948-2877 (cell)
(615) 743-6106 (fax)
(615) 743-6006 (office)

211 Commerce Street, Ste 300
Nashville, Tennessee  37201

Scott Ractliffe is a Nashville native who attendedHillwoodHigh School, attendedEmoryUniversity and the University of Tennessee, Knoxville, graduating in 1982 from UT with a major in Finance.Ractliffe is also a graduate of the Mortgage Bankers Association's School of Mortgage Banking. 

Scott is presently a Senior Vice President in the Mortgage Advisory Group at Pinnacle Financial Partners. Previously, he managed mortgage divisions for three other Nashville banks, including responsibility for multiple branches across the State of Tennessee. Scott has been involved in residential mortgage lending for over 21 years.

Scott is a past President of the Nashville Mortgage Bankers Association and presently President-Elect of the Tennessee Mortgage Bankers Association. He is also a member of the MORPAC Committee, with the Mortgage Bankers Association of America, active in legislative issues relative to the mortgage banking industry, regularly attending the ashington Leadership Conference, meeting with lawmakers on "The Hill" to promote legislation beneficial to consumers in Tennessee and across the country. In 2004, Scott received the CMB (Certified Mortgage Banker) Designation from the Mortgage Bankers Association of America – the highest designation awarded by the group.

Scott and his wife, Mary Ellen, have two children, Matt (17) and Hunter (15).

About  Pinnacle Financial Partners

      Pinnacle Financial Partners provides a full range of banking, investment and insurance products and services designed for small- to mid-sized businesses and their owners, real estate professionals and individuals interested in a comprehensive relationship with their financial institution.  Comprehensive wealth management services, such as financial planning and trust, help clients increase, protect and distribute their assets.  The firm also has a well-established expertise in commercial real estate. The firm began operations in a single downtown Nashville location in October 2000. 

           Pinnacle recently completed its acquisition of Mid-America Bancshares, the holding company of PrimeTrust Bank and Bank of the South.  Pinnacle is a $3.7 billion financial services firm with 33 offices in six high growth Middle Tennessee counties and two offices in Knoxville.

            Pinnacle is the largest independent bank headquartered in the Nashville MSA; has the fourth-largest market share in the Nashville MSA; the No. 1 share position in RutherfordCounty; and the No. 2 market share in Wilson and Cheatham counties.  It is the second largest bank holding company headquartered in Tennessee.  

            Additional information concerning Pinnacle can be accessed at www.pnfp.com

The Cost of Your Mortgage Loan Money Isn't Everything When considering lenders, factor in the level of service they will provide throughout the loan process. I'll be glad to provide a list of lenders who have successfully helped clients in the past. I also suggest that you ask friends and family in the area for their recommendations. The same care and consideration you give to finding the right house should be applied to your search for the right mortgage lender. For most home-buyers a major determining factor in selecting a lender is the cost of the mortgage loan. But how do you determine the cost of a mortgage loan? Shopping for a Mortgage Loan While most buyers concentrate on interest rates, it is best to look at all the costs associated with a mortgage loan. Mortgage loans include the quoted interest rate, points and closing costs. More than Just Interest A number of fees are associated with the mortgage loan, including: Appraisal - A carefully documented opinion of value by a licensed, professional appraiser. Credit Report - A detailed report of your credit, employment and residence history prepared by a credit bureau. Principal - The amount owed on a mortgage which does not include interest or other fees. Document Fees, Loan Fees and Processing Fees - Miscellaneous fees charged by the lender. Discount Points - Points paid in addition to the loan origination fee to get a lower interest rate. (1 point = 1 percent of loan amount) Origination Points - the total number of points paid by the borrower at closing. (1 point = 1 percent of loan amount) Interest Rate - A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds. Prepayment Penalty Mortgages (PPMs) These loans restrict your right to prepay part or all of the principal in the loans early years. A prepayment fee is charged by the lender to the borrower who wishes to pay part or all of the loan ahead of the regular schedule. The advantage of a PPM is that they often have a lower interest rate than other mortgages.   Using the Annual Percentage Rate (APR) to Compare Mortgage Loans The APR was designed to help borrowers understand the relative costs of a mortgage loan. The APR takes into account the various fees associated with the loan, which is why it is often higher than the interest rate. Understand that not all lenders calculate a loan's APR in the same way. That is why this should be only one of the factors used in selecting the best mortgage for you. Locking-in Interest Rates Another factor to consider when selecting a lender is whether the lender will lock-in the mortgage's interest rate and points. Click here to learn more about lock-in options.

Types of Mortgage Lenders

There are a number of types of primary mortgage lenders that you may encounter when shopping for your mortgage loan. To give you a better understanding of these service providers, a brief explanation is provided below.

Mortgage Bankers typically originate loans and then sell these loans to the secondary mortgage market shortly after funding. (The mortgage banker may or may not sell the servicing of the loan.) Often mortgage bankers have attractive loan programs and rates.

Portfolio Lenders make loans with the institution's own funds and keep the loan on the institution's books rather than immediately selling it to the secondary mortgage market. Many institutions engage in mortgage banking as well as portfolio lending.

Since portfolio lenders fund the loans, they are not confined to Freddie Mac/Fannie Mae guidelines. After a portfolio loan has reached its one year anniversary date without any late payments, it is considered seasoned and may be sold to the secondary mortgage market even if it does not meet Freddie Mac/Fannie Mae guidelines.

If a portfolio loan is sold to the secondary mortgage market, the portfolio lender may continue to service the loan.

Direct Lenders fund their own loans. Direct lenders usually fall into the category of a mortgage banker or portfolio lender.

Correspondents act on behalf of one or several lenders (sponsors) throughout the origination and closing. The loan is usually underwritten by the sponsor. The correspondent acts as the lender's agent. The correspondent may also service the loan for the lender.

Mortgage Brokers work as intermediaries between lenders and borrowers. Mortgage brokers have access to a number of lenders and often offer the most variety in loan programs. Brokers assist the borrower in filling out the loan application, obtaining the credit report and appraisal, selecting a loan program and finding a lender to fund the loan. In general, brokers do not make the decision to extend the loan and do not fund the loan.

The mortgage broker may be paid by the borrower or the lender. Payment to the broker is typically included in the closing costs as either fees or points.

Wholesale Lenders underwrite and fund mortgage loans. Wholesale lenders may also service the loan payments and ensure the loan's compliance with underwriting guidelines.

Banks, Credit Unions and Savings & Loans use funds gathered from their customers through checking, savings and certificates of deposit to make mortgage loans. The institution may hold the loan in its portfolio or sell it to a secondary mortgage market.

These transactions will not affect your mortgage amount or your mortgage payment. The secondary mortgage market is comprised of investors like Fannie Mae and Freddie Mac. Selling loans to the secondary mortgage market provides primary lenders with funds needed to issue new mortgage loans.
How to Reduce Your Mortgage

One Additional Mortgage Payment a Year  There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan's principal.   This is the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs". Only, when you do it yourself, you don't pay a third party unnecessary set-up costs and fees!

Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate

One-time Payment: It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift.  You could apply this money toward your loan's principal, resulting in significant savings and a shorter loan period.
Example: With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.