Mortgage Lender and the almighty FICO score

[Food Scientist]

Originally Posted By: Wolf359
Originally Posted By: SVTCobra
So since I own my first home I couldn't turn that into a rental property and move into the house I'm buying?

One of my buddies is buying up a lot of rental houses (6 or 7 already) and is deep in debt. I'd agree that his way is probably faster but I can keep buying houses as the cash becomes available and build up rental properties that way as well, albeit slower.


You just don't understand leverage. Sure you can pay cash for a rental property, but if you bought 4 rental properties and got a mortgage on all 4, if they go up 10% in value, it's really gone up 40% because you only put 25% down. Back in the 20's, they used to let you do that with margin on stocks, 10 to 1. Vast fortunes were made back then. And lost when the market crashed and now you can't do that anymore.


At first it was credit and now leverage? What do you think I'm referring to when I say that borrowing money is faster? Faster to actually owning the property and since he will take 30 years to pay it off, he can take the appreciation as he goes along compared to someone that saves money to pay for it. I don't like that approach because he has borrowed a lot of money and that is too much risk for me. It's fine for him and for the same dollars invested, he will have more money if everything goes to plan. Personally for me I don't like to worry about having to maintain a good job to pay for a good living. I'd rather be debt free in case I lose my job or become disabled.

 

[Food Scientist]

Originally Posted By: PandaBear

Why not do a 30 year fix for the moment even at higher interest, you can always refi later when you have the score to do that.


I qualify for the 15 year loan as is, just not at the rate they advertise. 30 year would be even higher yet.

 

[Food Scientist]

Originally Posted By: Wolf359
Originally Posted By: SVTCobra
I do understand credit and how it works. Just because I'm not another sheep in the herd doesn't mean I don't understand. Probably has to do more with hard headedness than anything.

It is a portfolio loan which the banks can make more money on since they get the full interest payment, not just what they skim off the top for the loans they sell to Fannie Mae. The limiting factor is how deep their pockets are and most small credit unions don't have deep enough pockets, which is why they stick to conforming loans.

I know I don't meet the Fannie Mae guidelines as originally posted that I don't have a credit score of 640 or better. The whole point is that the credit union raised the interest rates because a lack of credit score doesn't fit their mold, and somehow someone who pays for things as they go along and saves money is more risky. One of the main reasons they use credit score as a large factor in their approval has already been mentioned - it's an easy way to determine payment history and they can't tell what payments I've had in the past couple of years, which requires more work on their part to determine my credit worthiness.


If you understood it, then your rant is pointless. If you meet the guidelines, then you'd fall under automatic underwriting which is a simpler and easier process than manual underwriting. And they can actually make more money selling the loan on the secondary market because it doesn't tie up their money. I think that's the part you don't get. They can basically do an unlimited number of loans and sell them all off. They're limited in how many portfolio loans they can do and they just want to limit their risk to 5 years. The part you're not getting is that they do less work, make more money and have less risk because their money isn't at stake once they sell off the loan. With your portfolio loan, it's more work, higher risk hence the higher interest rate and their money is at risk.


Of course it's pointless, that's why it's a rant. Doubt posting this is going to change anyone's mind including the bank. Just a way to relieve frustration.

You need to fully read the post. I said they could make more money if they had deep enough pockets. Why loan money and take 0.5% interest by originating and servicing the loan when you can take the whole 3.375%?

Banks can't do unlimited loans as they don't have unlimited applicants, just like they don't have unlimited funds. The reselling of loans is a virtually risk free way of the bank to make money and since they can't sell my loan, that money is tied up for a lot longer period of time which equates to more risk which means higher interest rate.

 

[Brybo86]

Call church hill mortgage

 

[Sayjac]

Unfortunately unless you have the ability and wherewithal to pay cash for everything in life, establishing a decent credit score is necessary.

It's one reason why acquiring a credit card or two of your choice, using it and paying it off each month is a good idea.

And to use an expression some don't like but imo is apt here, it is what it is.

 

[Coprolite]

For everyone:

The FTC site provides the links needed to get the federally mandated annual free reports safely. My quick google showed me that many of the bureaus are using a paraphrasing of the official .com site to get users siphoned off. That is why I posted the .gov link instead.

Credit Karma may or may not have accurate scores, I find them relatively immaterial as I am around 830 from various independent sources. I find CK useful as it monitors Equifax and TransUnion reports and gives me updates to changes on the reports and indicators of how this may impact the score. I paid off a car loan early lthis past month and I just recently got the alert that it was reported as paid off. This give me confidence that the reports are remaining accurate. I check the site not for the synthetic score but rather to know that no one has stolen my identity and started new accounts. This can happen no matter how unique my name might be. I also ensure that the real accounts mesh up with my reality so that the real credit score is accurate in case I ever need it.

To give an example of leveraging credit for long term gain, I have maintained a car loan at very low interest, which has freed up capital to invest. The tax breaks of RothIRA should not be sniffed at and compound interest pays in the long run at much higher rates than the 1.24% on the car loan.

I view fees as vampiric, so it grates on me when they get extracted. I am limiting the card fees to those that balance out. If I use one card for only grocery shopping, I can get over 4% back even after the fee (6% of 6k minus $95). This is nothing to sneeze at. All cash back goes straight to investments, unless they can be levefaged for a higher gift card return. The key is that this is all budgeted and planned.

There is definitely more rope to hang yourself if you have lines of credit. But they also serve as lifelines and protection against fraud. If someone skims your debit card info and cleans out your account, you are liable and this doesn't sit well with me. I lived overseas on cash as a result with credit only as a safety net. Expense reports on CC are much easier and also keep expenses from falling through the cracks and lets the bank carry the balance while I wait on reimbursement. This risk is rewarded to me in the cash back I harvest while doing my day job.

I know we won't convert the OP. He will pay and continue to pay more and save less throughout life, though this mortgage penalty will reduce the costs of other issues cited above for the near term. His position is much better than the Jones who swim in high interest debt just to look good. He just doesn't happen to be harvesting the low hanging fruit. Many people such as he have very high aversion to risk, which is why I am surprised that he uses a debit card as this is so risky. Other than that, the evidence presented seems to show him on ok ground - and not as paranoid as me.

 

[OneEyeJack]

My credit score is zero. I've never financed anything except real estate including the home I live in. I've never missed a payment and usually pay off real estate early. I've always payed cash for everything else including cars, boats, trucks and motor homes. I don't like the idea of being in debt to anyone or any organization. I do business with a bank and I do have a debit card in a separate small account that is kept at a minimum for my protection. My account manager at the bank where I do business said that people like me are called "ghosts".

A FICO score is just an indication that you play by their rules. It's a cheap, quick way to justify loaning money, getting a credit card, renting an apartment or lots of other stuff. You can use the score instead of hiring people smart enough to determine someone's ability and willingness to pay back money from a loan. You can also call it a behavior modification scheme. If you behave, you get the loan or whatever. The same behavior and reward process applies to lenders, too.

Just remember to follow the rules and you too can have a loan or get that apartment and so on. If banks are good and follow the rules they can package their loans and sell loans to another bank and receive a better discount ratio. That way they can free up their capital like a good bank should, get some more loans going and do it all over again. The FICO scores on the loans in the packages help make the deal. To get the best terms they must also follow the rules. Life is much better when everyone behaves (lol).

 

[Food Scientist]

Originally Posted By: OneEyeJack
My credit score is zero. I've never financed anything except real estate including the home I live in. I've never missed a payment and usually pay off real estate early. I've always payed cash for everything else including cars, boats, trucks and motor homes. I don't like the idea of being in debt to anyone or any organization. I do business with a bank and I do have a debit card in a separate small account that is kept at a minimum for my protection. My account manager at the bank where I do business said that people like me are called "ghosts".

A FICO score is just an indication that you play by their rules. It's a cheap, quick way to justify loaning money, getting a credit card, renting an apartment or lots of other stuff. You can use the score instead of hiring people smart enough to determine someone's ability and willingness to pay back money from a loan. You can also call it a behavior modification scheme. If you behave, you get the loan or whatever. The same behavior and reward process applies to lenders, too.

Just remember to follow the rules and you too can have a loan or get that apartment and so on. If banks are good and follow the rules they can package their loans and sell loans to another bank and receive a better discount ratio. That way they can free up their capital like a good bank should, get some more loans going and do it all over again. The FICO scores on the loans in the packages help make the deal. To get the best terms they must also follow the rules. Life is much better when everyone behaves (lol).


Worded much better than I could put it.

 

[SeaJay]

My wife constantly tells me I am the most stubborn person she has known.

This will no longer be true after I have her read the OP's rebuttal comments posted here!

 

[Panzerman]

I think alot is lost by faithful Dave Ramsey followers, who I don't agree with at all.
The point is you are missing all the advantages that responsible credit card users enjoy because you don't want to use a credit card in the system it was designed for. So just complain and be miserable and listen to that idiot Dave Ramsey. The rest of us enjoy the cash back, benefits and enjoy the system in place.
When your in Rome, Don't do as the Greek.

 

[RedOakRanch]

I don't disagree with the OP rant. But these days having no credit history just doesn't fly in today's automated and regulated world. Having no credit history is like paying for groceries with gold bullion, you're not going to get many takers on that deal. I've had a perfect FICO score since spring and I pay for everything off in full on a credit card monthly. I've only paid interest on a few loans in my whole life, 1 mortgage and about 4 car loans. Not planning to ever borrow for a car again and the house will be paid off sooner than later.

 

[CincyDavid]

My vantage 3.0 score is roughly 100 points above my fico 9 score, but only 60 points above my fico 8 score, just to confuse things. My wife and I are trying to get our ducks in a row to sell our home next year and downsize a bit now that the last kid is away at college, so we're getting our CC utilization down around 10% by raising limits and paying down balances. It's amazing how quickly the scores can swing when you do that.

In a sense I agree the system is rigged in favor of "the house" just like at a casino, but if you have some self control and can look at the big picture, an individual can manipulate things in their favor. We're putting just about our whole spend this month on a new AMEX Delta Skymiles card to earn the 60,000 points for next year's vacations. The cash is sitting in the bank, while we use AMEX's money and earn points. If you do it right, it can work, but especially when there is a spouse involved, you both need to be on the same page.

 

[MarcS]

Manipulating your FICO score is a game. Use credit cards for bonus points and pay them immediately to build a history (i get 2% into my brokerage account on every dollar, so why wouldn't i use the card for everything?). Ask for credit limit increases every 6 months to reduce your debt ratio. When financing is free, take the financing then pay it off right away. My score stays at 800 and i have a higher credit limit than i make in a year. The scores are absurd and meaningless, so game them to save money.

 

[pandus13]

Originally Posted By: Wolf359
Originally Posted By: Coprolite
If you haven't yet, get yourself a free credit report or join Creditkarma
https://www.consumer.ftc.gov/articles/0155-free-credit-reports

https://www.creditkarma.com/free-credit-report
...

...Anyway, to check your credit, you should get a free report from www.annualcreditreport.com, it's the only legit site that gives you a free credit report but not score once a year from all 3 credit bureaus.


OP/SVTCobra

Please do the annualcreditreport website:
-it gives you your 3 credit scores
-check all lines.... thoroughly
-kind of hard to get from 750-770 in 2015 to 0 in 2017; something is not right
-I lived in MIchigan near Ann Arbor, and to my surprise, my first reporting entity on my credit report was the Power/Electrical company (COMED)
-I would also shop other banks....unless you find something wrong on your credit....

Good luck

P.S. I would still open at least a meijer/kroger or major gas station credit card just for history. Just buy a gum once a month to keep it active

P.S to P.S.: One poster mentioned the Dave Ramsey approved lenders: there's your other option (after you check your credit scores for inaccuracies)

 

[4WD]

Been that way for years - when in my 20's I was turned down for a car loan - good job, 3 years there , zero debt. Banker said go to Sears and get a credit card. Decades later - closed on my 3rd place yesterday at low interest (have 3, not 3rd deal) and bought appliances at Sears same day ...

 

[Coprolite]

One thing to take away if you are anti-credit cards. You will show up as having the cards and being current on the payments even if you don't use them. They only side effect that I can see of not using them is the reduction in credit line due to inactivity. My inactive cards still report the same as the active cards each month. The impact on the score is related to how much of total credit is used. If you pay before the statement cuts or never use them, that will stay below the magical number for dinging your credit.

I have been tempted to shred the new cards from the accounts that I have just to maintain a good average account age. Instead, I simply lock them up. Keeping an eye via CK and Mint will let me nip unauthorized use in the bud quickly.

 

[Leo99]

If you want to be a "ghost" and have no credit history, you have to accept the consequences. We can debate right or wrong but your credit score is a very important number in today's world; especially if you want to borrow money. Either stay a "ghost" or play the game.

 

[Sayjac]

Originally Posted By: Panzerman
I think alot is lost by faithful Dave Ramsey followers, who I don't agree with at all.
The point is you are missing all the advantages that responsible credit card users enjoy because you don't want to use a credit card in the system it was designed for. So just complain and be miserable and listen to that idiot Dave Ramsey. The rest of us enjoy the cash back, benefits and enjoy the system in place.
When your in Rome, Don't do as the Greek.

I like your post. Honestly, while I've heard the name Dave Ramsey, no clue who is. But if he eschews the responsible use of CCs as a tool for building a credit score, as you say he might just be an idiot.

I use credit and credit cards, I don't let them use me. Pay them off on time every month. I have no idea how much cash back I've gotten over the years, but it's been substantial. Not to mention the other benefits/advantages of using credit cards.

As they say, takes all kinds I suppose.

 

[Win]

Originally Posted By: SVTCobra
....
I fully understand credit. I just don't use it because my goal in life is not have the perfect FICO score. One of my goals is to have enough money to not rely on anyone for anything and I don't need credit to accomplish that. The rant is about laziness of bankers who are incapable of determining credit worthiness because I don't fit the normal model of applicants.



I completely agree with you. It is the theater of the absurd.

By monetizing these low end financial transactions, the big banks have created a scheme whereby to get a home or car loan ( the two most common consumer products ), you have to buy and use more of their consumer loan products. In any rational regulatory scheme, this would be an illegal tie in.

I'm like you - I probably couldn't get a home or car loan ( don't need one, fortunately ), but I bet I could get a few millions to build out that empty lot I've got, right down the street from a brand spanking new medical school that is taking its first class this fall.

That's just crazy. Which is the bigger risk?

 

[Mr Nice]

Half the advice Dave Ramsey gives is unrealistic.