Applying For A Mortgage: Credit Qualifying
18th June 2013
When qualifying someone for a mortgage, I look at it as a game of twenty questions. I need to get as much information about you and your finances as possible to make sure we find the best loan program for you. A good loan officer should be a trusted advisor who takes more into account than just how much of a loan you can qualify for. The mortgage you choose has to fit your life style and future goals, as well as your current financial situation.
The whole idea behind the qualifying process is to measure the risk. That is, to figure out how likely it is that a borrower will pay back the money they’re borrowing. I ask a lot of questions, but the qualifying issues all revolve around 3 areas:
Your history in these 3 areas determines what type of loan you can get, how much you can afford, and what your payments will be.
Credit Qualifying: Our whole society is run on credit. How well you manage your accounts, and how you’ve made your payment in the past are key factors in getting an approval. That doesn’t mean you’re out of luck if you’ve had a few late payments in the past. We look at your overall credit pattern, not just isolated incidents. And even if you have had serious problems in the past, this doesn’t mean you won’t be able to buy a home. We can deal with serious problems like bankruptcies, short sales and foreclosures after a waiting period. If you aren’t able to buy now, I can often help you determine what you can do to improve your credit over time, so you will be in a position to buy later.
Risk Based Pricing – One big change in the mortgage market is the new Risk Based Pricing. This is the idea that those borrowers with the best credit scores and higher down payment will be able to get mortgages at the best rates. Those with lower credit scores and lower down payments will have to pay more. (The best conventional rates are now for borrowers with scores of 740 or above). The people affected by this change are borrowers with credit scores good enough to qualify for Fannie Mae and Freddie Mac based conventional financing. (FHA does have credit based pricing, but we can make loans with minimum credit scores as low as 580). This means that good credit is more important now than ever before. Having higher credit scores can save you thousands of dollars in payments over time, or mean the difference between being able to buy, or staying a renter. The best thing you can do is review your credit early and address any problems now.
In the weeks to come, I will review with you our credit reporting system and some key things you need to know about your credit scores. We will also discuss how your income and assets all play a role in qualifying for a loan. In the meantime, please let me know what questions you may have and how I can help you.