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Home Purchasing

Credit Tips


This is part two, in a six part series, on how to be an expert of your credit. A good credit score is important for more reasons than just obtaining new credit. These days, it can factor into everything from landing a new job to getting the best deal on your insurance policies. It’s more important than ever to avoid late payments on your mortgage!

A 100 point drop for one late mortgage payment? It’s true. A single 30-day-late mortgage payment can cause your score to drop by as much as a hundred points. Credit scoring algorithms vary based on many factors, and in some instances, the damage may be even greater and last for years.

The costs accumulate. At the time, a single missed payment will cost you only a late fee, but the expense really adds up on your next loan or missed opportunity. Low credit scores typically mean a higher rate and cost. Higher rates can mean hundreds of thousands of dollars of extra expense over the life of a loan.

Missed payments are usually unplanned. Usually, events beyond our control lead to late payments, such as an accident, illness, job loss or family issue. At other times, carelessness or a hectic life may result in a forgotten payment.

What can you do?

Plan for the unexpected. Maintain an emergency cash reserve account equal to at least 3 months of living expenses or more.

Automate. If you’re prone to forgetting or don’t have a scheduled time to sit down and pay bills, set up auto payments through your checking account or put a perpetual reminder on your calendar.

Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. If you don’t already have a good system in place to assure timely payments and are not sure what’s best, reach out anytime. We’ll be happy to help set up a plan that’s right for you.

As always, we are happy to help here at Envoy; no question is too big or too small. Just contact me to get started.

What Does it Mean to Lock a Rate?

rateLockGraphicWhen working on a home loan, one of the decisions we will make together is when to “lock” your loan.

What does a “rate lock” mean?

When we lock your loan, we are setting aside the necessary funds and “locking” in the loan terms and interest rate.  In essence, think of a lock as your “RSVP;” Envoy is setting aside the necessary funds for your transaction and we are assuming the risk of rates rising during the lock period.

What is important to know about locking your rate?

The moment we lock your loan together is the moment the clock officially begins ticking regarding the loan (for purchases, your offer to purchase will have already started the clock).  Most rate locks come with 15, 30, 45 or 60 day terms (We have extended rate lock options up to 270 days as of the time this post was written).  The shorter the period we lock your rate, the more beneficial to you in terms of overall cost but the faster you must close.

Why and how does the length of a rate lock affect my refinance cost?

In mortgage lending, most every cost factor comes down to one variable – risk.  You will generally find that the more risk a borrower is willing to assume, the better rates and terms a lender is willing to offer.  Conversely, when a lender assumes more risk they tend to counter that risk with higher costs.  In this particular case, the longer we guarantee an interest rate the larger a buffer we will require to offset that risk.

What is the smartest path for you – my client?

The ideal scenario for us is to have as many of our ducks in a row as possible – right now.  You see, if we have your loan file “pre-processed” this will help the underwriter expedite your file through the process.  The faster and smoother the process, the shorter “loan lock” period we can get away with – and the more money you will save overall.  In this same spirit, when and if the underwriter requires additional documentation at some point during the process – please jump on these requests immediately.  Keep in mind, however, that sometimes, no matter how fast we are, if you are purchasing a home, the seller may still make you wait until the last day on the offer to purchase to actually close the transaction. 

What happens if I commit to locking my loan and we do not close in that time period?

Sometimes, conditions arise that delay the process and loan locks “expire” before we can close the transaction.  In this case, the lender will typically grant an extension on the lock period – but at an additional cost.  An expiring loan lock does not typically jeopardize the overall likelihood of the loan closing but it’s a date that needs to be respected as much as possible.

Thanks for reading this post. I always say that “an educated consumer is an empowered borrower” and I am going to keep the information coming your way.  If I can be of any service any time, please do not hesitate to call or email me anytime.