What Are Credit Tradelines?

I think I’ve made it clear before that I find no shame in talking about how hard we work for our clients. My assistant, Jamie, and I see a good number of mortgage applications come across our desks every week and in 2019 and 2020, a high percentage of them have been for jumbo home loans, which means that our borrowers must demonstrate strong credit depth by way of an adequate number of tradelines on their credit report. Gone are the days when one could just have a decent FICO score in order to cross credit concerns off of the loan approval list.

When we talk about credit tradelines and credit depth, most of the prominent jumbo mortgage banks like to see recent credit activity (that is, use of credit and timely payment) to consider any account active. And that’s really what a “tradeline” is — an account. An individual tradeline might be a mortgage, an auto or student loan or a credit card. All are different types of “trades” but in the case of revolving debts like credit cards, use of those cards in the last year or two is what really brings the tradelines into active status and works to meet the jumbo lender’s requirements.  By far, the gold standard for jumbo credit is three active tradelines with activity in the last twelve months, per borrower.

So in that spirit, I’m going to let you all in on a secret for getting a great jumbo loan if you are thinking that a mortgage application may be in your future in the coming months. Here are three GREAT ideas for taking that seldom-used credit card lurking in the back of your wallet or purse, or that forlorn department store card that you forget you had, and turning it into a bona fide active tradeline which, in turn, makes you eligible for the widest selection of jumbo loan programs.

1) The Starbucks Triple Mocha Frappuccino (Venti): $4.95

This frosty beverage will set you back both 500 calories and 500 centavos — but don’t you dare pinch pennies to pay this time. Instead I want you to reach for the least-used credit card in your quiver and rack this hefty charge on that piece of plastic. By doing so, you’ll bring this credit card to “active status” within the last 12 months and you’ll be on your way to both cardiac arrest and credit qualification.

2) Nashua Tape 1.89 in. x 120 yd. 300 Heavy-Duty Duct Tape (2-Pack): $10.88

Race fans! Hot rodders! Weekend warriors! Remember when you bought your house and your mother-in-law gave you a $100 gift card to Home Depot? Remember when you used it all plus another $400 on that initial visit and they convinced you to open a store card, take advantage of the discount and then pay the rest off later? Remember too that you haven’t used the card since that day twelve years ago? Well, now’s the time to repair everything in the house with duct tape. We already knew of its all-purpose abilities, so you’re burnin’ daylight, pardner. Get crackin’ on those DIY projects and the ‘honey do’ list and pick up a two-pack just in case.

3) The Warren Plaid Boxer: Now $15.00

One other thing that we know is that if someone is going to have a collection account on his credit report, and it’s going to be of the variety of which he’s unaware, it’s either going to be a medical bill or a Banana Republic store card (close third to a cell phone bill never received). I’m not sure why this is, but people go bananas over Banana’s billing. So let me help you save your credit shorts and get into a clean, fresh pair of undies while at the same time giving you an excuse to A) actually locate your Banana Republic card, B) place an order on it before they call you to tell you it’s been inactive since Marky Mark made skivvies the shizzle and, C) bring your store card to active status in the eyes of Equifax, Experian and Transunion.

My point(s) above are simple.  Active credit tradelines are a critical component to getting a great jumbo loan, but you can’t create them after you’ve applied for a mortgage. When we pull your credit report as part of the pre-approval process we’re looking at both credit history and recent activity but the time to address both is BEFORE you’re in the mortgage process. Or while you’re saving for your down payment. Or while you’re waiting for more inventory to hit the market, etc. Bringing your unused tradelines to active status is a little step you can take that will pay a big dividend later — opening up the widest array of jumbo options and, as a result, giving you access to the most competitive rates.  Let me know if you have questions about this aspect of getting a jumbo loan and I’ll be happy to help you craft a road map to success and hey, I might even let you in on a few more bargains as well…

Venti triple mocha frap for Ron,

Rob Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

FHA FAQ

Maybe you just got the news from your loan officer that you need an FHA loan in order to qualify for your home purchase. “Oh brother,” you say, another acronym, additional lending jargon and still more ways to be confused about the whole mortgage process. Or not? What are the differences between an FHA loan and a “regular” or conventional mortgage? Let’s take a look at some of the most frequently asked questions that swirl around FHA loans and cut right to the chase of what you need to know in order to determine if an FHA loan is a good fit for you.

 

Q)  Is an FHA loan different than a regular mortgage?

A) Not really. At the end of the day, you’ll probably find yourself in a 30-year fixed rate loan. In fact, the core loan program is no different than a conventional or “conforming” mortgage but when you get an FHA loan, the lender who makes the loan to you is “insured” by the Federal Housing Administration.

 

Q)  Do I have to be a first-time buyer to get an FHA loan?

A) No! There are no first-time buyer requirements for FHA borrowers. Shoot, you can even refinance an existing conventional mortgage with an FHA loan if it ends up being the best option.

 

Q)  What’s the minimum down payment requirement for an FHA loan?

A) 3.5% in most cases. And even in high-cost areas where FHA loan amount maximums on a single-family home get to $726,525 (as of May, 2019), you can still put down only 3.5% if you qualify.

 

Q)  Do all FHA loans have mortgage insurance?

A) Yes, they do, but there are some key things to know about how it works. First, when you obtain an FHA loan, the lender will add UFMIP (up front mortgage insurance premium) of 1.75% of the loan amount to the loan balance but not to the loan-to-value. In effect, this form of insurance is paid as part of your regular payment of principal and interest because it is added to the initial loan balance. Then, you will also have monthly MIP (mortgage insurance premium) as an additional component of your total monthly housing payment. The amount of MIP and the duration for which it will stay depends on your scenario. Ask me or your loan officer if you have questions about this.  FHA loans require an impound account for taxes and insurance so when you make your payment each month, the MIP will be included in the total (along with principal and interest, property taxes and homeowner’s insurance).

 

Q)  Are the rates good on FHA loans?

A) Yes! Comparatively speaking, you’ll find that FHA rates are excellent.

 

Q)  My credit isn’t the best. Will I still qualify?

A) FHA has a very forgiving tolerance for lower FICO scores, as well as some of the shortest seasoning periods from a past bankruptcy, foreclosure or short sale. If you have credit challenges in your past, an FHA loan might just be the best fit for a mortgage with decent terms.

 

Q)  Are there any prepayment penalties on an FHA loan?

A) Never. And if rates get better in the future, you may be able to avail yourself of an FHA streamline refinance.

 

Q)  Can I use a non-occupant co-borrower to help me qualify?

A) Yes. Also known as “co-signers,” FHA loans permit a family member, for example, to assist with your qualification if you are unable to go it alone.

 

Q)  Are gift funds allowed for my down payment?

A)  Yes, and they may constitute 100% of the down payment.

 

Q)  I have a lot of student loan and credit card debt. Is that OK?

A) All of your obligations are considered in an FHA qualification, but we allow a maximum total debt ratio of 57%, which is very forgiving (conforming loans max out at 49.99%). Be mindful of the fact that if you live in a community property state (like California) and you are married, the liabilities of your spouse must be considered as well, even if that person is not on the loan itself.

 

Q)  Can I finance a condo with an FHA loan?

A)  Yes, but the condo project must be FHA approved and not all will be on the FHA approved list, which you can find HERE.

 

Q)  Can I get a renovation loan through the FHA?

A) Yes. The FHA 203K loan is specifically designed for renovation projects.

 

Q)  I found a two-unit home that I love. Will FHA permit multi-unit real estate?

A) Yes, the FHA program allows properties between one- and four-units. You can use the rental income from the other units to help qualify, though some restrictions and important guidelines apply. If you are considering a multi-family dwelling, be sure to discuss this with your loan officer.

 

Q)  Can I use an FHA loan for an investment property?

A)  No. FHA loans are limited to primary residencies only.

 

Of course, you may have other questions about FHA mortgages that are not addressed here and that’s an invitation to get in touch at any time and let me know what’s on your mind. The FHA program has helped countless buyers realize the dream of responsible home ownership and if you think it may be a good fit for you, we look forward to being of service.

Frequently asked, seldom imitated… 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283