How to Qualify for a Mortgage
A brief summary on how to get a home loan
When a mortgage lender takes your application they are checking your ability and willingness to repay. It is said that "history repeats itself". Lenders look at your history to predict the future. This process can go as quickly as 24 hours or take several weeks.
This is done by checking the following items:
- Your credit history (the past 2 years)
- Your checking account (bounced checks are not good)
- Your income
- Your FICO score (on conventional loans)
Almost everyone who has some sort of credit, some money set aside for a down payment and an income can get a loan. Now whether or not you want that loan may be a different story. Mortgage rates are proportional to the amount of risk the lender must take. If the credit history is bad, the risk will be off set by a higher interest rate.
The best way to qualify for a mortgage that you want is to have a nice clean credit report, little debt and pay all your bills on time, every time. Excessive consumer debt as in multiple credit cards lowers your FICO score. A hint to avoid this happening is to consolidate your debt on one charge card.
Even if you have excellent credit it is a good idea to pull a credit report on yourself, prior to visiting the lender. In Colorado you are allowed to do this free of charge once a year. (If you aren’t in Colorado or any of the "free" states, then you can pay a small fee to obtain a copy of your credit report.) There are more than one credit reporting companies and not all companies report to all credit bureaus, so be sure to request a credit report from all, just to be sure.
Here is how to contact the credit reporting agencies:
Equifax Equifax Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
You can also order your credit report from a secure section of the Equifax website.
Experian National Consumer Assistance Center
P,O, Box 2104
Allen, TX 75013-2104
You can print a credit report order from at the Experian website.
Trans Union Corporation, Consumer Disclosure Center
P,.O. Box 390
Springfield, PA 19064-0390
You can order a credit report online from Trans Union’s website.
By reviewing your credit report prior to visiting a lender, you will be able to straighten out any errors or disputed items and avoid any troublesome holdups down the road. If you see a disputed item, an error made by a faulty social security number, a name similar to yours, or a court ordered judgment you paid off that hasn’t been cleared from the public records, clear it off now. By writing to the credit reporting agency, you can have them remove the items and save you time and aggravation later.
- TIP: Make sure any outdated derogatory entries are deleted from your credit file. By outdated, anything over 7 years should be deleted (except bankruptcy which is 10 years).
- TIP: Officially cancel inactive credit cards Even if you don’t use a credit card, some lenders will assume that credit limit is available to you and use it in qualifying you. Therefore, if you don’t use it and don’t need it, cancel it. Too many credit cards even with no balance can keep you from getting a loan.
- TIP: Hold off on making any major purchases until after you close on the loan. Many times people obtain a loan commitment then go out and charge a new car or a houseful of furniture, only to totally destroy the ratios on their loan commitment.
If you find you need assistance with any of these strategies, it’s OK to sit down and talk with a lender. Explain your situation and what you are trying to do. A good lender will help you structure your finances, credit report and budget, keeping your best interest in mind.
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