Mortgage Rates Shift And Credit Rules Evolve

We share a quick market update on mortgage interest rates and explain why a temporary spike can happen after inflation data. Then we dig into major underwriting changes that let rent and, in some cases, utility payments strengthen automated approvals for buyers with thin credit histories. 

In this episode - 
• what “automated approval” means and why thin credit files get stuck 
• how FHA can consider utility payments and why that matters for first-time home buyers 
• whether adding rent or utilities can change a borrower’s interest rate 
• retroactive reporting and the realistic 30 to 45 day timeline 
• why agents should connect buyers early to use time as an advantage 

Transcript

Market Update And Rate Spike

SPEAKER_01 0:35

All right, welcome to your market update. Nikki, what do you got for us this week?

Automated Approval Vs Manual Underwrite

Reporting Rent And Utilities For Credit

SPEAKER_00 0:41

Well, it's a beautiful day in Arizona, that is for darn sure. We're actually up over the hundreds now, so it's kind of crazy. But anyway, the market today. So we've been seeing some really good stability and interest rates as far as being into the mid to low sixes. Today, however, is a different story. Today we got a little bit of a spike due to inflation numbers coming out. Um, we're into the mid-sixes today for sure. Very temporary as the market reacts to those numbers, and they should go back down into that mid to low six range. Um, I did want to talk today about minimum credit requirements for getting what's called an automated approval for buyers during the pre-approval process. So there's a it's what I've seen lately is there's been some changes to Fannie and Freddie specifically and also to FHA surrounding what gets automatically approved and what doesn't. In the past, a lot of times it was a minimum trade line history of three trade lines, one at least revolving, and all of those trade lines with an on-time payment history for at least 12 months. That has been the general rule of thumb. So when we talk about people wanting to get pre-approved and we talk about, you know, just minimum credit requirements, that's usually what we focus in on. People with thinner credit history, people with, you know, kind of late payments in the last 12 months, those have been notoriously difficult to really get that automated approval taken care of. A lot of times, then what we rely on is what's called a manual underwrite. And a manual underwrite takes a deep dive into things that are beyond the credit report, things like verifications of rent, things like other non-traditional trade lines that can happen where it can help us get a better history or a better look at what the borrower's payment history is like and help us to approve a mortgage for them. What's been changing now is that Fannie and Freddie are now allowing us to put rental history on the credit report. What that does is it allows us to have that additional trade line and that strong trade line of housing. What we can do with that is let's say you have rent for like$1,800 a month and your new mortgage payment is going to be around$2,000 a month. If you've had a font time payment history for at least 12 months, what it does is it helps us establish that longer housing history and allows us to get a better automated approval in a lot of their circumstances. With FHA specifically, we can do that not only with the housing, but we can also do that with utilities because FHA will take utility payments into consideration. So when you think about Experian offering that like self-reporting of utilities to help boost your credit score, that is one of the things that we can consider in FHA, or that we don't consider in Fanny and Freddie. If you remember a couple months ago, or even just probably a month ago, when I was talking about that vantage score that takes those things into consideration, well, because of that vantage score implementation, Fannie and Freddie and FHA have now responded in saying, oh, well, wait a sec though, we'll allow rent, we'll allow utility payments to be part of that history. So just some really interesting changes coming down for especially people with thinner credit histories, first-time home buyers or people who just don't carry a lot of debt and don't like a lot of debt. Gives us kind of some insight into how they'll make their payments and be able to approve more buyers over time. So just a really interesting change. So if you have clients who are first-time home buyers or who haven't been able to be approved in the past because they haven't had a long enough credit history, definitely reach out to them and see if they can, you know, put their utilities on or their rental on their actual credit report, and that'll help them to be able to qualify for a home in the future.

Score Impact And Retroactive History

SPEAKER_01 4:07

That's great. Yes. And so they responded. So what would what would the interest rate look like? I guess if that is the key factor, deciding factor between getting approved or not approved.

SPEAKER_00 4:20

So the interest rate, yep. So the interest rate will not change unless adding those trade lines to your credit report changes the credit score. So if it's a positive trade line history and you add it, so like if you add your rent for 12 months, it should allow the credit score to go up, whereby improving your interest rate. But it won't, we won't hold that against you as far as interest rate goes if you are adding more non-traditional trade lines, especially if it helps us to get that automated approval.

SPEAKER_01 4:46

Yep. So let's say my buyer hasn't had this reported. Is there a way that you can, if I sent you my buyer today and they've had the history, when would that start to report? Yep.

SPEAKER_00 4:59

So the history is retroactive. So if you go and you say, okay, I'm gonna add my utilities, it'll actually go to the utility company and figure out when you started paying that bill and it'll track it through the entire thing. So it'll go back in time and add that entire history to your credit report, whereby strengthening it.

SPEAKER_01 5:18

As well as rent?

SPEAKER_00 5:20

As well as rent, yeah. You can do that with rent as well. The rent takes a little bit longer just because there has to be a person from the credit agency, so it's from Equifax, Experian, et cetera, reaching out to the landlord or to the management company and verifying that rent was paid on time, whereas utilities, it's more of an automated system that they can tap into and report.

SPEAKER_01 5:39

Okay. And was that something that you would take care of or and talk with the experience person to reach out to it is, yeah, it is, or it's something that the client can do on their own.

SPEAKER_00 5:49

If you download the Experian or the Equifax app or the TransUnion app, you should be able to add a trade line and then have them reach out and complete that for you.

SPEAKER_01 5:58

Perfect.

SPEAKER_00 5:58

And how long do you think that process would take? Usually 30 to 45 days to get it reported. Yep. So it they take some 15 to 20 days to actually verify the information and another up to 30 days to add it into the report.

SPEAKER_01 6:10

Okay. And so let's say you have a buyer that's potentially FHA or could go conventional, you know, like good credits for over 680, 700. Is this something that they should be doing as well?

SPEAKER_00 6:24

Only if they don't get an automated approval. Okay. So if you get an automated approval, not no need to add things, et cetera. It's for people who have either like been denied, have said, oh, you have too short of a credit history, or you know, things of that nature, or we're working on building credit, those things to build credit can really help. Got it.

Use Time To Prep Future Buyers

SPEAKER_01 6:41

No, that's good to know because we all have those in our pipeline for sure. I know, I know. And you're just waiting, waiting, waiting. Yeah. Yeah. So and it's even if you're talking to new buyers or go back, so they can start the process as well today. So, Nikki, what I tell so many agents when they call me and they're like, oh, well, the buyer said, you know, they're not going to be looking, or you might maybe selling and buying or whatever until the spring, or you know, they're just not ready till the fall. My answer always is now is the perfect time for us to be talking, or I'm so glad that we've connected. And this is a perfect talking point because now, even if they're not going to be looking until the fall or even next spring, we have this gift of time. So they get them over to you. You can dig through this stuff and you can be like, this is what you should do. And you can really position these buyers in the best case scenario so that when they're ready to go this fall or spring, you're not just starting this process. And I think so many agents kind of miss that.

SPEAKER_00 7:44

Yes, that's absolutely correct. And a lot of times we can do what's called a soft pull on their credit to make sure that they are in line and make sure that the trade lines do make sense and then work from there to add anything in that we need to add in.

SPEAKER_01 7:54

Yeah. So so, so very important. Anyone you're talking to, I don't care if it's a month or a year or three years. Oh my gosh, I'm so glad that we connected today. Now's the perfect time for us to be talking. Get Nikki in the situation, get them connected because there's so many things, especially if you have the gift of time, use it to your buyer's advantage and position them in the best position possible when they are ready to go. And then you can drop them things of value throughout the time. Nikki will be in contact with them, and she does a fantastic job of staying in touch on your behalf as well as hers. So it's better to have two than one, than just yourself. So, really, if you don't have a running partner like Nikki, you you need to get with Nikki.

Where To Find Us And Next Steps

SPEAKER_00 8:41

I appreciate that. Yeah. No, a follow-up is key and just being able to walk people through the process and help more homeowners is really what the goal is. And I don't, it doesn't matter to me if they take one month or six years to buy. You know, whatever they need help with, et cetera, you know, I'm there to help them. So if they're willing to put in the effort and willing to do what they need to do to get approved, I'm there to help them. I love it.

SPEAKER_01 9:01

Great. Yeah. And anyone listening are to the replay on YouTube or on the podcast or social, where do they find you?

SPEAKER_00 9:08

Uh, you can find me on Facebook and Instagram at mortgages from MN to A Z. I'm also on TikTok under that same handle. And then you can also call me at 952-484-1584, or email me at Nikki at Kevnik Group.com.

SPEAKER_01 9:22

Perfect. And you can also find me if you're a real estate agent looking for extra help. I did start a school community. This one is for women, and it's real R E for real estate business builders on the school community, or email me, angie gerber at gmail.com. And we have Nikki and I are here to help you and your business in any way we can. Absolutely. All right. Well, thank you so much, and we'll look forward to an update next week. You have a good one. Absolutely. You too. Bye bye. Bye.