Podcast
Questions and Answers
Which of the following is considered a non-traditional credit payment by lenders?
Which of the following is considered a non-traditional credit payment by lenders?
What is a consumer credit report primarily used for?
What is a consumer credit report primarily used for?
According to the Fair Credit Reporting Act, what can a consumer do if there are errors in their credit report?
According to the Fair Credit Reporting Act, what can a consumer do if there are errors in their credit report?
Which type of credit report is specifically tailored for residential mortgages?
Which type of credit report is specifically tailored for residential mortgages?
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How may credit scores be affected after correcting errors in a credit report?
How may credit scores be affected after correcting errors in a credit report?
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What is the disadvantage of Payment Option ARMs?
What is the disadvantage of Payment Option ARMs?
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What is the price in points for a loan-to-value ratio of 90.01-95%?
What is the price in points for a loan-to-value ratio of 90.01-95%?
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What is the price in points for a borrower with a FICO score between 660-679?
What is the price in points for a borrower with a FICO score between 660-679?
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What is the advantage of an Adjustable Rate Loan (ARM)?
What is the advantage of an Adjustable Rate Loan (ARM)?
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What is the price in points for a high-rise condominium or cooperative apartment?
What is the price in points for a high-rise condominium or cooperative apartment?
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Study Notes
Types of Credit
- Traditional credit includes installment loans, revolving loans, and 30-day open agreements reported to credit reporting agencies
- Non-traditional credit includes rent, utility, child support, and other bill payments that are verified by lenders
Credit Reporting Agencies
- There are three major credit reporting agencies: Experian, Trans Union, and Equifax
- Consumers can request one free credit report from each agency per year, but must pay a fee for credit scores
- Errors on credit reports can be corrected by contacting the agency and providing proof of the errors
Credit Score Calculation
- Payment history accounts for 30% of the FICO score calculation
- FICO score is used by lenders to determine creditworthiness
Correcting Credit Errors
- Consumers have the right to correct errors on their credit report for free
- To correct errors, follow the instructions on the credit report and provide additional information as needed
Improving and Managing Credit
- Factors that affect credit scores include:
- Payment history
- Outstanding debt
- Length of credit history
- Types of credit used
- Open new credit wisely to improve credit scores
FICO Score Components
- FICO score is calculated based on:
- Payment history
- Amount of outstanding debt
- Length of credit history
- Types of credit used
- New credit opened
Non-Traditional Credit Acceptance
- Some lenders accept non-traditional credit, including:
- Rent payments
- Utility payments
- Child support payments
- Other large recurring expenses
Ordering a Consumer Credit Report
- A credit report provides information on credit history and scores
- There are different types of credit reports, including:
- Consumer credit report
- In-file credit report
- Residential mortgage credit report
- Consumers can request a consumer credit report from credit reporting agencies
Disputing Inaccurate Information
- Under the Fair Credit Reporting Act, consumers can dispute inaccurate information on their credit report
- Correcting errors on a credit report may change the credit score
Applying for a Mortgage Loan
- A mortgage loan application involves providing personal financial information and credit application
- Verification of information provided includes:
- Income and employment
- Assets
- Down payment assistance
- Credit
- Debt
The Mortgage Payments and Other Costs of Homeownership
- The costs of homeownership include:
- Principal
- Interest
- Taxes
- Insurance
- Private Mortgage Insurance
- Additional costs to consider:
- Closing costs
- Moving expenses
- Reserve funds
- Home maintenance
- Home Owners Association Dues (HOA) if property is a condominium
Mortgage Options: Advantages & Disadvantages
- Adjustable Rate Loans:
- Advantages:
- Start with lower monthly rate
- Fully amortize except for Payment Option ARM
- Periodic and life interest rate caps limit the amount the interest rate can increase
- Disadvantages:
- Payment Option ARMS may not fully amortize
- Monthly principal and interest payments vary
- Adjusted rate may be higher and not affordable
- Payment shock
- Potential negative amortization
- Advantages:
Typical Add-on Fees
- Fees associated with mortgage loans:
- Reduced documentation: 0.750% = 3/4%
- Loan-to-value 90.01-95%: 0.500% = 1/2%
- FICO score 660-679: 0.250% = 1/4%
- Credit score higher than 740: -0.125% = -1/8%
- Two-unit properties: 0.375% = 3/8%
- High rise condominium or cooperative apartment: 0.750% = 3/4%
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Description
Test your understanding of traditional and non-traditional credit reporting, including installment loans and revolving loans. Learn about credit scoring and responsible borrowing practices.
