Qualifying for USDA Loan with Low Income

Consumers often shy away from applying for a mortgage when they know their income is too low to qualify them for a program. While this might be true for traditional type loans, such as the conventional loan, there are options out there for people with smaller incomes. If your desire to become a homeowner is held back by your lack of income, consider looking into the USDA loan, a successful option for those with lower incomes. This successful loan program which is offered by the United States Department of Agriculture offers flexible guidelines, low-interest rates, and fewer requirements than most other loan programs.

Little Money Needed

The down payment requirement is often what holds people back from purchasing a home. The all-too-common need to put down 20 percent on a home is what people focus on, thinking that they will never be able to afford a home with that kind of money required up front. On the contrary, the USDA loan does not require any money down – you can finance 100 percent of the purchase price of the home. Right off the bat, this takes a huge amount of pressure off of the buyer as there are not thousands of dollars needed up front to purchase the home. In addition to not needing a down payment, you may be able to finance the closing costs into the loan, including the funding fee of 2.75 percent of the loan amount. You are able to finance up to 102 percent of the value of the property, according to the USDA, which can include the funding fee and closing costs. If you offered a lower amount for the home than it is worth, you have even more room to roll closing costs and the funding fee into the loan amount.

Low Monthly Payments

Sometimes it is not just the down payment that scares people away from applying for a mortgage, but the monthly payments as well. If you have a high interest rate, your payment is going to be high, even if the home you purchase is relatively cheaper than other homes in the area. With the USDA loan, however, the interest rates charged are much lower than any other loan program. Typically, they do not alter with debt ratios or credit scores, giving everyone that qualifies for this program a low interest rate and affordable monthly payments. Since the USDA program is for low-income families and homes that are located within rural areas, the purchase price of the home is not going to be very high as it is, further contributing to the affordability of the mortgage payment. In addition, the mortgage insurance that the USDA charges for any mortgage that has a loan-to-value ratio higher than 80 percent is well below the costs of any other program, giving you even more reasons to be able to afford the loan.

Flexible Guidelines

Credit scores, debt ratios, and income requirements often render many potential borrowers ineligible for a loan program, but that is not often the case with the USDA loan. In fact, the less money you make, the more eligible you become for the loan. This is not to say that they do not have credit or debt ratio guidelines in place – they do, but they are much more flexible than other programs, including FHA and VA loans. The guidelines include:

    Minimum credit score of 580, but if your score is less than 620 but higher than 580, you will have to go through some additional evaluation to ensure that you can afford the loan. If your score is higher than 620, the guidelines are very simple to meet. If you do not have a credit score due to insufficient credit reporting, you are eligible to use alternative trade lines, such as insurance, utility, or rent payments.
    Your income cannot be higher than 115 percent of the average income for the area. Every area differs, but you can find the maximum amount for your area on the USDA website. They do offer allowances on your income if you have children, elderly, or disabled family members living with you, enabling you to increase your chances of having income low enough to qualify for this affordable program.
    Your credit history should show on time payments with no more than 2 late housing payments within the last couple of years. Your other payments should also be timely for the most part; however, a few late payments will not disqualify you for the program, especially if your credit score is above that 620 range.

The USDA loan makes it possible for people with low income to qualify for a loan. Granted, you have to purchase a home in a rural area, but a large majority of the United States falls into this category. A search on the USDA website will show you where these affordable homes are located, enabling you to purchase a home despite your low income and put the days of renting behind you.

source: blownmortgage.com

Does Paying Rent Improve Your Credit Score?

Not too long ago, paying rent didn’t have much to do with your credit score. Not paying rent could (and still can) wreck your credit score. If you were behind enough to have your account sent to a collections agency, your past-due rent would likely be reported as negative information to the credit bureaus.

Rental rates in the United States are skyrocketing because of foreclosures, an unstable housing market, and the general hesitance of younger Americans, especially, to buy homes. While renting can be a good option for many, historically it has not been helpful in building a credit score.


For renters who are rebuilding credit after a foreclosure, or those who are renting until they can afford to buy a house, that’s a problem.

For many of us, rent is the biggest check to hit the bank account every month, and not getting some acknowledgement for paying that important bill on time is frustrating.

Luckily, some of the major credit bureaus are beginning to take rent into account on credit scores.

Experian and TransUnion now allow renters to include their positive payment information in their credit histories, according to the Wall Street Journal. But because this is relatively new, there are some caveats. Here’s what you need to know about your rent’s effect on your credit score:


Not All Companies Use It

At the moment, Experian and TransUnion will include rental information in your credit file; Equifax will not.

Also, not all credit score calculations are set up to include rental payments. The VantageScore calculation may incorporate rent into your score, but the more popular FICO calculation will not. This means that rent will affect certain scores based on the information from certain credit files.

Here’s how it works: Each credit reporting bureau keeps a file of credit history information on you. Your credit history is the basic facts of your payments, account inquiries, balances and such. It doesn’t automatically have a numerical score assigned to it.

In order to get a credit score, a credit scoring formula is applied to the raw information in your credit history file. This means that you could get three very different FICO scores – one for each credit bureau – or even three very different VantageScore results. And lenders can choose which score they use.

Most lenders use the FICO score, but VantageScore is starting to be used more often. To keep up, FICO may change its formula to include things like rent and utilities payments.


 It’s Not (Usually) Automatic

 

Experian is working with property managers through its RentBureau system to have rental payment data automatically updated for renters. Even though the company works with landlords across the country, only a fraction of renters have their information automatically reported to RentBureau. 

 

Also, the other information in your credit file may determine whether your rent is weighed in your overall credit score. According to CNN Money (emphasis is ours):

“VantageScore’s new model will also weigh rent and utility payment records, and public records like bankruptcies for people with very limited credit histories. This will allow it to score as many as 30 million people who previously couldn’t get a credit score and potentially help them qualify for more competitive credit rates.”

So even if your landlord does report your rental information to Experian or TransUnion, and even if you do pay your rent on time, you may not see a huge credit score boost. The inclusion of rent in a credit score calculation is mostly meant to benefit those who otherwise wouldn’t have much – or any – information in their credit files.

Of course, as more Americans opt to rent instead of buy, these standards could change.


How to Get Rent Counted in Your Credit Score


Now that you know these caveats, you may still be interested in having your rent reported in your credit history. It’s a good idea if you’re trying to repair bad credit, or if you don’t have much credit history. But how do you get it done? Here are four options:

1. Talk to your landlord. According to Experian, you can ask your landlord or property management company to join the RentBureau program. Your landlord has to sign up with a rental payment service that works with RentBureau, and then you can opt to have your rental history reported to Experian.

2. Use WilliamPaid to pay rent. WilliamPaid is one of the services that Experian, in particular, uses. Your landlord doesn’t have to sign up for you to use it. Basically, you use the service to pay your rent with a credit card, debit card, bank account or cash, which is accepted at certain retail locations. WilliamPaid also has an automatic payment option.

The fees for using various WilliamPaid payment options vary. It’s free to have your bank account electronically debited, but it costs 2.95 percent of your total payment to charge it on your card. You can also use a combination of payment methods for a 2.95 percent fee. Also, you can use the service to split rent payments between roommates, tracking who has paid and who hasn’t.

With WilliamPaid, you can have your rental payments reported to Experian. If you’re responsible with your payments and have them drafted from your bank account, it’s an excellent, free way to include rent on at least one of your credit reports. And if you use a credit card, you get the added benefit of having your credit card payments reported to the credit bureaus by your credit card company.

3. Try Rent Reporters. Rent Reporters is another rent reporting service, but it is not free. To get started, you enroll in the service, and the company verifies your information. Then, you’ll get an online account where you can track what information is being reported to credit bureaus.

You can sign up with Rent Reporters for free, and they’ll verify your information. Then, you pay $9.95 a month to have your rental information reported to the bureaus. For an additional $34.95, Rent Reporters can send up to two years of your rental payment information, as well. This could be a good option if you’ve always paid your rent on time and are trying to boost your credit score.

4. Check out Rental Kharma. Rental Kharma is similar to Rent Reporters. Again, you create an online account, but with this service, you’ll pay a one-time $10 fee for reporting up to two years of rent payments.

Rental Kharma provides information only to TransUnion, but Cullen Canazares, the company’s founder, said via email that Rental Kharma hopes to begin working with Experian soon.

One interesting thing about how this service works is that it makes rent appear as a tradeline on your TransUnion credit report. A tradeline is an account, according to Experian. So, essentially, TransUnion treats your rent payments like a credit card account or another installment type loan.


 Are These Services Right for You?

Whether these services are right for you depends on your credit situation and needs. Because rent is meant to be part of the credit scoring process for those with bad credit history or no credit history, these options are best for those on the low end of the credit ladder.

Experian representatives told CNN:

“Through the addition of rental data, one in three consumers falling in the lowest rung of Experian’s VantageScore credit scoring model (receiving a letter grade of an F and scoring between 501 and 600) will move up at least to the next level (with a D grade and a score between 601 and 700).

However, remember that you’re not guaranteed to receive better loan offers, even if your rent is reported to Experian and TransUnion, since you never know which score from which bureau a potential lender will pull.

Still, with services like Rental Kharma, costing $10 (or $20 if you’re married because you’ll have to apply separately), and with potentially free options like WilliamPaid, it doesn’t cost much to get a potential credit score boost. Plus, FICO may make some changes soon that could broaden the impact of having your rental income on your credit report.

Would you ever use one of these services to have your rental payment history reported to a credit bureau?

source: doughroller.net

How to Restructure Credit Card Debt

For consumers struggling to make ends meet and racking up credit card debt and barely making minimum payments, hardship programs might provide a welcome relief.

Many credit card companies offer these programs that target borrowers who have fallen behind on payments. They typically offer debtors lower interest rates as well as reduced payments, fees and penalties. In general, most hardship programs fall into two categories: short-term, which could be for a few months or up to a year, or permanent which is until the credit card balance is paid.

Credit card companies don’t publicize these programs because they hurt revenues due to the lowered interest rates. But for most banks, these programs are a better option than not getting any money back as a result of an individual’s default or bankruptcy.

Delinquency: Not a Good Strategy

There are a couple of things to keep in mind when approaching a credit card company about enrolling in a hardship program. Most creditors will want to look at your income and expenses so be prepared to explain your budget. The company will evaluate your ability to pay your debt to determine your eligibility.

They will also look at your account history, so it is a good idea to inquire about the program before falling behind on payments. Using delinquency as a strategy to get your creditor to work out a deal with you is a bad idea. You’ll get a more sympathetic ear if you approach them prior to missing a payment.

Hardship programs are not designed for reckless spenders who have maxed out their credit cards and are looking for an easy way out. They are aimed at debtors who have been hit by catastrophic, life-altering crises like a job loss, major illness, inability to work or loss of spouse or breadwinner. That is not to say that banks will not work with you if you don’t fit into one of these categories.

Stop the Plastic Habit

Be warned that these programs usually mean you will lose use of the credit card. In most cases, your charging privileges will be suspended or revoked. Some companies, however, have programs that restore your privileges upon completion of the program.

Entering a hardship program could also impact your credit score. Before entering the program it is a good idea to ask what repercussions this could have on your credit. Some companies negatively report this information to credit bureaus. Sometimes the negative references on your credit are removed after the program is completed. When negotiating with your creditor about being placed on the hardship track, it is important to understand the card issuer’s policies and the consequences.

The policy on credit reporting depends on the company. Most short-term plans are no more than a year. Long-term plans can go as long as five years. American Express, for example, doesn’t negatively report borrowers on short-term programs. But those who are on long-term programs should expect large dings on their credit regardless of what bank or issuer you owe.

source: foxbusiness.com

Does Your Credit Score Matter If You Don’t Do Debt?

A long time ago I told my friend Brad from EnemyofDebt.com that not paying attention to your credit score is dumb. I refused to listen to him on all his thousand and one reasons why he could care less, and I thought the fact he said he had a score of “0″ (yes, ZERO) was cockamamy. I’m pretty sure I told him it wasn’t even possible, which I later came to find out was kinda sorta untrue (it’s possible to have no credit score, which in essence is kinda like a “0,” even though it’s not).

Here we are though, 3 years later and much wiser in my age, and I’m starting to come around to the idea a bit more :) Not that I’m sold completely on the whole thing – I’m not, and I’ll totally continue to monitor my own ‘cuz I think it’s smart – but I do see where Mr. Brad is coming from more now. His stance can be simply summed up like this:

If you’re never taking out a loan again, why does your score matter?

An interesting take on the whole score game for sure. Especially if you’ve never really thought about it before. Why DOES your score matter if you don’t  have any loans or credit to your name at all? Is your CASH worth less depending on what your score reads? It’s a cool way to think of things mainly because it’s so drastic. When was the last time you decided to never have a loan or credit card?? Haha… for me it’s probably been a good 25 years, like when I was 7 ;)

And just like I thought 3 years ago when first debating against Brad, some of the same questions remain for those who believe it’s just not that possible:

1. How do you rent an apartment without a credit score?
2. How do you BUY a car without being able to take out a loan??
3. How do you get A HOUSE without taking out a mortgage?? Or mortgageS?

All common occurrences in our lives which we’re just so used to these days – something Brad says is part of the problem: Society has deemed taking on credit and loans as perfectly normal, so people rarely stop to consider the alternatives anymore! Nonetheless the consequences.

But what about those questions up there? What do people like Brad (aka the anti-debtors) say about ‘em? I picked apart an email he had shot me a couple weeks ago where he was doing a Q&A with one of his readers (I had told him if he didn’t put it on his blog  I was going to! Haha…), and he answers all 3 of those questions as he is always known to do: with passion and vigor :)

Renting an apartment without a credit score:

“You can definitely rent an apartment without a credit score. You can check out a service called eCredable.com that allows you to build a payment history to show landlords that you are financially reliable. It allows you to track your payments for utilities, rent, etc. It is a great resource! It’s also great to have an emergency fund savings statement showing how much you have saved up.

If you have no debt, can prove you are reliable, and can show you have savings, most landlords would be glad to have you. As a former landlord myself I know for a fact that a credit score really isn’t a reliable indicator as to how good of a tenant someone will be — financially or otherwise.”

Buying a car without a credit score:

“Buying a car is certainly possible without a credit score, assuming you are planning to buy one without going into debt. Having a car payment is one of the worst ways to own a car. You do not need a car payment to own a car as long as you buy a gently used 2-3 year old car that has had one owner who took care of it and can prove it. I do not recommend getting a car using debt — EVER — therefore your credit score doesn’t really matter when buying a car.”

AKA if you’re paying all *cash* for something, your credit doesn’t even become an issue. And I’d even tack on here that you could get a car for CHEAPER too if you presented the “all cash” option during your initial negotiations! Whether you buy it from a dealer, or from an individual. Here’s a good article Lance did for us the other month on paying cash for a car vs. taking out a loan, for what it’s worth. Even though it’s def. PRO-loanage ;)

Buying a home without a credit score:

“If you’re looking to get a house via mortgage one day, then you can do so without a credit score. It’s not as popular as other routes because society is so attached to their credit scores. It’s called “manual underwriting” and there are places that will take your real life information (renting receipts, eCredable reports, credit history (different than credit score), savings, income, and how much debt you have to evaluate your ability to pay a mortgage. (15-year fixed rate) My wife and I are paying cash for our next house so we don’t even need that.”

While pretty extreme, you can see it IS possible to function in this world without worrying about your credit and/or credit score. It mainly becomes an issue whenever you need to take out that loan or get approved for something/etc. (And maybe when you’re looking to get employment too as many companies now check out your credit too, whether you believe it’s right or wrong). If you have no plans on ever doing it though, why should it matter if you can get an excellent interest rate or not?

Brad ends his email to his reader like this:

“Chasing a credit score is a slippery slope and many experts still believe that it’s the only way to function in today’s day and age. It’s not true though and there are plenty of people living debt free without a single worry or care about their credit scores. It’s just a matter of how much you really want to be, stay, and live debt free. You don’t have to play the credit score game. The choice is yours…”

Interesting stuff to think about either way. Could I do it? No way. I enjoy taking advantage of my credit cards and loans to better leverage my money and (more importantly) my TIME, and I also like trying to compete for the best score too ;) As possible as the non-credit lifestyle may be for some, it’s just not that practical in my world. And I’m totally okay with that as long as things keep pushing forward and I don’t make any stupid mistakes ;) I’ll gladly take on a car loan if I can do something better with my cash instead, and I def. don’t want to wait 100 years to save up enough to buy a house cash-free either! Haha… Though I’ll gladly give Brad mad respect for doing so as it takes a LOT more restraint and patience that I’ll ever have, that’s for sure.

At the end of the day, though, I choose practicality and convenience over extremism. ‘Cuz I know myself well, and I’m confident I won’t get into much trouble using credit towards my advantage.  If you DON’T trust yourself though, or you SUCK at managing debt/credit cards/etc, by all means stay away!!  Maybe give Brad’s take some serious thought and slow things down a bit? There’s nothing wrong with choosing either side here as long as it’s the right one for YOU. So definitely consider your own habits when reading info about this stuff online, or wherever. You personality matters a LOT here.

Thoughts? Questions? Concerns? I’ll try and get Brad to watch this thread in case anyone wants to throw some zingers his way and/or give him props ;) He’s one of my best blogging friends I have, and I know he appreciates a good debate! So let’s see what you’ve got.

source: budgetsaresexy.com

How to Improve your FICO Score

It is important for you to understand that trying to raise your FICO score is quite similar in nature to losing weight. There is no quick fix and it is absolutely going to take time. Quick fix efforts for improving your credit score can most certainly back fire if you are not careful. The best advice for you to follow is simply to manage your credit in a responsible manner over a period of time.

Tips for Payment History

1. Make sure that you are paying all of your bills on time. When you have delinquent payments or accounts in collection, you could be putting a serious negative strain on your FICO score over all.

2. If you have missed any of your payments, then you need to get current and you need to stay current. The longer that you manage to pay your bills in a timely manner, the better your credit score is going to be.

3. Understand that paying your collection account off is not going to remove it completely from your credit report. The delinquent collection account is going to sit on your credit report for a period of 7 years before it disappears.

4. Understand that if you are having trouble when it comes to making ends meet, legitimate credit counselors and working with your creditors may actually help you. You may not be able to improve your FICO credit score on an immediate basis, but you can begin to improve your management of your credit, paying on time, to improve your credit over time.

Tips for Amounts Owed

1. You need to keep your balances low on your credit cards and other types of revolving credit as well. When you have high outstanding debts, this can have a negative impact on your credit.

2. Make sure that you are paying debt off rather than simply moving it around. Pay your debt down and you will surely improve your credit score over a period of time.

3. Do not close out any unused credit card accounts because it is not going to raise your score in any way but rather may actually hurt you in the long run.

4. Do not open a bunch of new credit cards if you do not need them because this strategy is not going to improve your credit score. This approach could quite possibly backfire, lowering your credit score as a result.

Credit History Length Tips

1. If you have only been managing your credit for a short period of time, do not open too many accounts too quickly because too many new accounts will lower your average account age. This could have a serious impact on your credit score in a bad way.

source: richcreditdebtloan.com

Easing Home Equity Standards

AS home values continue to stabilize in many areas, lenders are making home equity loans more accessible.

A report published in June by the Office of the Comptroller of the Currency noted that one in five lenders nationwide loosened up underwriting standards on home equity loans, while another 68 percent kept them unchanged from a year ago. In 2009 — during the heart of the housing crisis — no lenders had eased standards, according to the report, which surveyed 87 banks with assets of $3 billion or more, while 78 percent had tightened them.

Lenders also have been lowering the credit scores and equity levels needed to qualify, industry experts say. “You may not need to have as much equity as lenders may have demanded two years ago, when housing prices were going to fall,” said Keith Leggett, a senior economist at the American Bankers Association. This is especially true, he said, in areas where home prices are appreciating.

Nearly 90 percent of homeowners in the New York metropolitan area now have some built-up equity, versus 77 percent nationwide, according to a recent report from the data analytics firm CoreLogic.

Navy Federal Credit Union, with over three million members nationwide and five branches in the New York region, is among those easing qualifications, based on its periodic analysis of borrowers’ lending performance. “We have gone to lower credit scores,” said Steve Krieger, a vice president for mortgage collections and equity lending.

Mr. Krieger says the credit union’s evaluation of home equity applications is based on several criteria, including: the amount of equity available in a home; a borrower’s income; and a loan-to-value ratio. (As little as 5 percent equity may be enough to qualify.) Someone who has been in a job for just two or three months “will be dinged a bit,” he noted.

Lenders calculate the loan-to-value ratio by adding the home equity loan amount to the mortgage balance and then dividing that by the property’s value. Today, 80 to 90 percent would be the highest acceptable ratio, according to Jeanie Melendez, a vice president for market growth and development consulting at Wells Fargo Bank.

Those considering a home equity loan should begin the process by estimating how much equity they might have available in their homes. Mr. Krieger suggested checking recent comparable sales in the neighborhood at online sites like Zillow.com. “You can get into the ballpark of what your home is worth,” he said, though he pointed out that as part of the application process the lender generally requires an official appraisal.

Borrowers must decide whether they want a traditional home equity loan, sometimes called a second mortgage, which has a fixed interest rate and fixed payments, or a home equity line of credit, known by its acronym, Heloc. A line of credit usually has a variable rate and can be drawn down incrementally. The variable-rate Heloc is one and a half percentage points lower than the fixed-rate home equity loan, which in turn is around three percentage points above the average 30-year fixed-rate conventional mortgage.

Borrowers should also note loan restrictions. For example, Navy Federal does not allow home equity loans to be used for small-business investment or to buy a second home, while JPMorgan Chase does not allow them to be used on educational costs. (Some loans are actually audited after closing, to check.)

Wells Fargo, one of the nation’s largest mortgage lenders, has no such restrictions. “I don’t think folks are using it to buy a fur or a big-screen TV,” said Ms. Melendez, who is based in Boston and oversees the New York region. “They’re being more careful about how they’re using their home as an asset.”

Ms. Melendez says that although Wells has not made changes to its lending criteria, it has been seeing increased demand for home equity borrowing, largely to pay for home improvements and college education.

source: nytimes.com