Your credit score is an important component of pre-qualification. If your score is not where you want it to be, we’ll work together on an individual strategy to raise it. Here are some variables that affect your score:
Before applying for a home loan, it’s important to pull your credit report and review it with us. Not only will it reveal your score, it will give you a chance to clear up erroneous items on your report before moving forward in the mortgage process.
Paying attention to the reason codes will give you an idea of why you were scored in a certain way. Perhaps you have old collections or made too many inquiries in a short amount of time. You and your lender can use these reason codes to put together a roadmap to credit score recovery.
Rebuilding your credit score — and, in turn, securing a lower interest rate on your loan — relies on several factors. These key concepts can help you keep your credit score in check as you prepare to apply for a mortgage:
Debt ratio: Maxing out your credit cards or carrying a high balance each month doesn’t help anyone. Keeping your balance at a reasonable level will show lenders you’re not maxing the credit limits. Before applying for a mortgage, work with The Mortgage Medic’s Teams consultants to determine your ideal debt ratio and how you can get there.
Payment history: Your payment history is one of the most critical variables in your credit score. It indicates to lenders how reliable you are. Paying bills late, not paying at all, or having an account charged off and turned over to collections can leave lingering scars on your report. Talk with a financial expert about your options before purchasing a home if you’re behind on payments.
Public records: Bankruptcies, tax liens and civil judgments may appear on your credit report and stay there for up to 10 years. Generally, only time can heal the negative effects of these records, but they’re not deal breakers. Keeping the rest of your credit in good standing can be enough to overcome the damage done by these records.
Total accounts in use and age of credit: Lenders look at the number of loans and cards you have open as an indicator of your reliability and desirability as a borrower. While it’s beneficial to have a variety of accounts, having too many is not advisable, as the other side of this factor is average age of credit. With each new account opened, you diminish your overall average — and this factor is more significant than number of accounts.
Inquiries: Applying for new credit accounts — essentially allowing a lender to get your credit report to evaluate you for a loan or credit card — has a relatively low impact on your score, compared to other factors. But applying too often may raise a red flag, and inquiries stay on your credit report for two years. Pulling your credit report or checking your score yourself does not affect your credit score.
The more cash you’re able to put into your home purchase upfront, the less you’ll have to take out as a loan and, usually, the less you’ll pay in interest over time. Some home shoppers are all-cash buyers, some put 5 percent down, some less than that. Your minimum down payment will depend on the type of mortgage that best suits your financial needs and its terms. The Mortgage Medic’s Teams mortgage experts will help you determine the right option and appropriate down payment amount.
Role of the Title Company
The title company researches property records — outstanding mortgages, liens, unpaid taxes or other issues that affect ownership — to verify the title of the property you’re about to purchase, ensuring that no one else can claim it. Based on that information, the company issues title insurance, which protects both you and your mortgage lender from lawsuits or claims against the property. Title companies also handle escrow funds for settlement and closing costs, as well as the formal closing, in many cases.
Learn about your options and the steps you can take to qualify for the perfect mortgage. Contact The Mortgage Medic Team today to schedule a consultation with one of our lending experts.
The Mortgage Medic Team is committed to finding solutions for our clients and mortgages that make sense for them. Call Donni and his team today to talk about your credit score concerns, create a plan to get back on track and secure an excellent loan agreement.