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From Inman News Features Los Angeles Times Newspaper
Loans Depend Increasingly on Credit ScoresFor most lenders, credit scoring has replaced meeting with an applicant to determine credit worthiness.
For the borrower, this means the FICO score, named for Fair Isaac & Co., determines whether a loan is approved. A web site that helps applicants assess credit scores is icreditscore (laws411.com network)
Though the practice has its merits, such as reducing the possibility of discrimination and more accurately assessing a consumer's credit worthiness, it is not without flaws.
Though a reporting agency must remove any entry the applicant can prove is incorrect, it's often a long, time-intensive process. Scores also may not account for one-time occurrences, such as a sudden job loss or a death in the family that left the applicant temporarily strapped for funds.
Credit scores are reported by each of the three major credit bureaus, Experian (formerly TRW), Equifax and Trans-Union. The scores can range from 350 to 900, and each credit bureau scores slightly differently. A score of 700 and above is generally looked upon favorably by lenders.
Some factors that affect the FICO score: late payments, short credit history, too many recent inquiries, balances that are at the limit, tax liens, judgments and bankruptcies.
Congratulations on your decision to buy a home! Whether this is your first home or you’re planning a new purchase, I’m here to help make this a smooth transition.
Budgeting Basics - Financing
There are quite a few decisions you'll make during this exciting process. The best way to start is with a budget. I'm not a finance expert, but I can offer some guidance. A mortgage lender will become an important person in your life when you are selling or buying a home. Countless mortgage loan lenders and programs are available. You will, of course, want to research the lenders you are considering to make sure that they are reputable, will research your needs and, most importantly, will communicate with you.
The mortgage application process will help solidify the budget you’ll have for your new home, but you should make sure you're comfortable with the amount you're financing regardless of what the bank approves. Your lifestyle may require less of a mortgage to allow for travel, education, decorating, renovations, hobbies or other expenses that would mandate a lower mortgage payment even though your salary could afford more. Careful consideration should be given during this process to make sure all factors in your budget have been considered and adequately represented in your monthly expenses.If you plan to apply for a mortgage or a bridge loan, it’s best to gain pre-approval before beginning to look for your new home. This continues to be a seller’s market. What does this mean for the buyer? If all offers are equal, the buyer with a pre-approved mortgage will be in a better position to gain the accepted offer. To get you started, Coldwell Banker offers mortgage application processing through Cendant Mortgage (1-888-407-6721). Pre-approvals with Cendant generally take less than a half an hour. Cendant is a well known and respected name in the industry. This could help you in the seller's eyes when competing against buyers with an unknown bank or broker backing their finances.
Keep in mind that pre-qualification and pre-approval are not the same. Pre-qualification simply states that based on the verbal information provided, you would likely qualify for a mortgage. A credit report and full application process has likely not been run for a pre-qualification, nor has a real commitment been made by the bank.
If you are pre-approved, then your credit has likely been pulled and you have been approved for a certain mortgage amount. You may also be given a firm interest rate for the mortgage. Should your financial picture change so could the pre-approval, but the assurance that you will gain the mortgage if your finances remain the same as they were at the time of application is likely. Sellers know this. It will make you much more desirable as a pre-approved buyer to sellers versus pre-qualified. These days, most sellers insist on a pre-approval to accompany all offers in order to be considered. Scrambling at the last minute to gain the pre-approval to be considered for the home of your dreams would not be a good experience. Most pre-approvals will last for a specified period of time to accommodate time needed to find a home. It's best to get that taken care of before starting your search.
This market has spurred more than a few bidding wars. Bidding Warriors Beware: Keep in mind that if the bank appraiser values the home you plan to finance at less than your purchase price, you will likely need to have alternative financing to bridge the difference.
Credit Reports and FICO Scores
Before applying for a mortgage, you may want to request a copy of your credit reports to ensure accuracy. There are instances where information can be filed on your reports in error. There may also be entries that you want to clear up prior to applying, since they may have a negative impact on the amount or terms of mortgage granted. It can also help when negotiating mortgage terms if you know your credit profile before beginning the application process.
When determining credit worthiness, your FICO score is often used in conjunction with the credit report to build your credit profile. This information just recently became available to consumers. You can learn more about FICO and find out your score at icreditscore (laws411.com network).
Three main credit report agencies exist. Since these agencies pull information from different sources, you may find inconsistent information between agencies. The application process involves a credit check from any of these reporting agencies. For that reason, it’s advised that a credit report be requested and evaluated for accuracy from each agency.
THINKING OF BUYING A HOME?
Can you answer "yes" to the following questions: Do you have a steady, reliable income? Do you have a good record of paying your bills? Do you have money saved up for a down payment? Do you have the ability to pay the monthly mortgage payment and the taxes, etc.? Do you know how much you can afford? Do you know your debt-to-income ratios?You should get your credit score in order, too. It has been discovered that there is a definite relationship between credit scores and mortgage delinquencies. Therefore, most lenders will figure credit scoring into the application process. Some credit score resources available online include: icreditscore part of the laws411 network – an online resource guide to credit scoring agencies and businesses.
There are a lot of rules to be aware of. But, every rule is made to be broken. Lenders to do not always adhere strictly to the rules. Because Mortgage lending is a competitive market, if one lender can't help you it is likely that another can.
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