You’ve read it on the web, seen it on TV and heard on the radio. Quite possibly, you’ve felt the results of it in your own life. Credit. A lack of credit, negative credit and positive credit. Credit, credit, credit and more credit. It’s everywhere. Know your credit score, know how to improve your credit or keep your credit in good standing. In spite of all of the advertizing, I believe there still isn’t enough accurate credit education available to consumers today. I know there’s a lot of confusion about what to do and what not to do.
In terms of mortgage financing today – credit is going to play a large determining factor in a number of different elements:
- Instant loan approval or credit repair
- Mortgage insurance rates
- Loan Program Eligibility
- Minimum down payment options
- Interest rate
- Maximum qualifying amount
- Home owners insurance rates
Let’s unpack this a bit. First and foremost, don’t click away if you have blemished credit or a lack of credit thinking you won’t ever qualify for a home loan. Nothing could be further from the truth. Certainly, there needs to be a plan and you may need to take some action, but you can recover from past credit woes and we’re here to help you take the right steps.
There are some key positive things that we are looking for when assessing your long-term ability to repay a mortgage and we need to be able to prove that you are likely to repay your mortgage, on a timely basis. That makes sense right? So, here are a few things we’re looking for:
- 12 months of on-time payment history on at least 3 accounts. These can be rental history, credit card accounts, car payments, student loan payments or other payments that report to a credit report or don’t. Know that your standard rent, utilities and insurance payments don’t report to a credit report so these items will be known as alternative credit.
- You’re not “maxed out”. Again, no running and hiding or clicking away because your one credit card with a $1,000 limit is at $1003 right now. This isn’t a reason alone for denial. However, when assessing your overall ability to repay, if you’re very credit heavy in terms of revolving debt and you’re completely maxed out, it doesn’t paint the most stable use of credit. Ideally, your credit score and your loan application will be looked upon more favorably if you have available credit to use vs. credit that is completely used up.
- A lack of overdrafts, overdraft protection advances or payday advances. We understand an occasional blip – everyone has them – but recurring or consistent overdrafts or advances against pay say that you’re spending more than you have the ability to spend already or having difficulty managing your monthly expenses. Keeping your bank account clean is ideal when applying for a mortgage loan. If you do use overdraft protection on a regular basis as a normal course of financial business – stop now. If you have an isolated instance that is easy to explain, simply be prepared to explain it.
Your actual credit score will play a role in your ability to obtain a mortgage as well as the items I listed above and there are some generic things you should understand about your credit score. There are a number of different things that make common sense to you or me to do in preparation for applying for a home loan that may actually impact your credit negatively.
Do NOT do the following without advice from your Loan Officer:
- Pay off collections
- Pay off accounts completely
- Close accounts
- Consolidate debt
- Acquire new credit
- Apply for new, additional credit
The best advice I can give as it pertains to credit and applying for a mortgage is to start by having us review and advise you specific to your individual credit situation. Just as each of us are different as human beings, so are our credit profiles. Making changes that you may see as positive could negatively impact you and items you thought may be seriously negative may actually not be so bad or be able to be easily remedied. Take the time to visit with someone about your credit before your start your home search.
We offer free consumer credit reports and analysis to all of our clients. We will take a look at your credit report and your credit score with you and assess next steps in the mortgage pre-approval process. You can start the process online by completing our online pre-qualification worksheet, contact Carrie via e-mail, or call 952-808-2810 to set up your one-on-one consultation and start the pre-approval process off right!
To learn more about mortgage credit standards today, attend one of our Free monthly classes for First Time Home Buyers or Current Home Owners.
Our next First Time Home Buyer Class is Thursday, February 9th from 6:30-8PM. Register online for our First Time Home Buyer Class.
Our next Right Move Class for Current Home Owners is Saturday, February 25th from 10-11:30AM. Register online for our Right Move Class for Current Home Owners.
The First Time Home Buyer Class and Right Move Class are both located:
Cornerstone Mortgage Company – 436 Gateway Blvd, Burnsville, MN 55337 – 952-808-0042
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