Community Acceptance Mortgage Blog

Know the facts about your credit score when shopping for a new home loan, refinance loan or home equity loan.

Your credit score is a number, (usually between 300-850), used to rate how risky a borrower you are; the lower the score, the greater the risk you pose to creditors. Most mortgage and credit card lenders use credit scores when making lending decisions. A low credit score may result in a denial of credit and lenders will charge higher interest rates on loans to individuals with lower scores. This practice is known as risk-based pricing.

Individuals with high credit scores get superior interest rates to those with lower scores. And individuals with lower credit scores are often targeted with high risk-based loan programs and pay higher interest rates. For example, individuals with top credit scores might pay about 5.5 percent for a $250,000 mortgage with a monthly payment of $1,419. If extended credit at all, an individual with a credit score under 679 could pay over 15 to 30 percent for the same mortgage, carrying a monthly payment of over $1,630. Over the course of a 30-year term, that’s about $72,000 to $165,100 in extra interest!

Understanding your Credit Profile to Improve your Credit Scores.

Equifax™, Experian™, and Trans Union™ dominate the world of Credit Reporting Agencies. Each uses a different model for credit scoring. Credit scoring models are developed by analyzing statistics and picking out characteristics that are believed to relate to creditworthiness. Credit Reporting Agencies use different scoring models for different purposes. Generally, credit scores are calculated by analyzing a combination of factors including: payment history, outstanding debt, credit account history, recent inquiries, and types of credit.

The first step in managing your creditworthiness is to get a clear picture of your credit profile. Study the data from the top three credit bureaus to make sure all the information is accurate. In the event of discrepancies, send letters of dispute to the credit-reporting agency to have errors on your credit profile corrected. Also, don’t hesitate to consult your mortgage specialist who can provide guidance and if needed, refer you to credit repair specialist.

Fix and Maintain a Healthy Credit Profile

Identify problem areas on your credit profile and make a plan for improvement. For example, if you’ve had a hard time paying your bills on time, sign up for an automated payment service. If your debt levels are above 40% of your available limit, create a payment plan to reduce your balances. Set goals for improving your credit and reward yourself when you reach a milestone.

To keep your credit healthy, sign up for a Credit Monitoring service which will help you stay aware of any changes in your profile. If any disputed inaccuracies persist, contact the creditor and try to have the item eliminated from your credit profile. If you want to tell your side of the story, send a written request to the Credit Reporting Agency to have a consumer statement added to your credit file. Keep copies of your old credit profiles and letters of dispute in a safe place for future reference. Plan to evaluate your progress quarterly.

Each inquiry may reduce your credit score. However, multiple inquiries within a short amount of time, like when you are shopping for a mortgage, are grouped together to lessen the impact. The actual impact depends on the number of inquiries, time period and other factors on your credit profile.

Consolidate high interest credit card debts into one lower interest account. However, avoid combining debts onto a new credit account with a resulting balance above 40% of the available limit. Check your credit profile frequently while moving these debts to make sure that everything is being properly recorded.

Taking a proactive approach to the management of your credit profile can save you tens of thousands of dollars over the course of your lifetime. And it is never too late (or too early) to start!

Here are a few ways to position yourself for approval, and for the lowest fixed mortgage rate!

With prices declining and supply ballooning, now is a great time to buy a home. However, lenders are scrutinizing borrowers much more carefully these days, and even with good credit, gainful employment and cash in the bank for a down payment, applying for a mortgage is more challenging today than it was just a few months ago.

Get a Credit Makeover. Some sins, such as unpaid tax bills, late payments or “past dues” remain on your credit report for several years, even after you’ve paid them off. But by reducing credit card balances (to 40% or less of the available credit,) and paying off any overdue amounts, you can improve your score dramatically in a relatively short period of time. Major credit restoration may require the services of a credit repair specialist.

Put Up or Shut Up! The more money you put down, the better your chances of securing a loan and the better the mortgage rate you will be eligible for. These days if you don’t have at least 15 to 20% of the purchase price, you may not even qualify for a loan with many institutions.

Show me the money! In the not-so-distant past, most lenders didn’t require you to provide proof of income. Now, you must be prepared to show your W-2 forms and, if you’re self-employed, you will need to produce several years’ tax returns. Proof of business ownership and asset verification are also part of today’s standard operating procedures.

Keep it real! Make sure you have money left over Stay within your budget. Don’t even allow your real estate agent to show you properties that are outside of your range. When getting pre-approved for your home loan, look for a mortgage specialist that offers options based on how much home you can actually afford. Your downside risk increases proportionately with the amount you pay and conforming loans (loans under $417,000) are easier to sell and easier to approve. Be sure to keep money aside for other investments and emergencies.

During the past few years, many unsuspecting Americans were victimized by predatory lenders and fraudulent mortgage individuals and put into situations that have become unmanageable.  Michael Calhoun of the Center for Responsible Lending says “Families all over the country continue to lose homes in record numbers, stripping families of their wealth and destroying entire neighborhoods”

Predatory lending and mortgage fraud typically affects senior citizens, lower income and challenged credit borrowers. It forces borrowers to pay exorbitant loan origination/settlement fees, sub-prime or higher interest rates, and in some cases, unreasonable service fees. In short, these practices often result with the borrower being placed into inappropriate loans which, all too often, lead to defaulting or worse still, foreclosure.

There were 1.7 million foreclosures in the US in the first eight months of 2007, and up to 2 million families are expected to lose their homes over the next two years, according to estimates by the Joint Economic Committee.

“All around the country, aid agencies report a tidal wave of foreclosure cases”, says Sarah Gerecke, director of New York City’s Neighborhood Housing Services. She now employs six people full-time to provide mortgage debt counseling, and could use another 12. Two years ago, she had one employee.

In our research for legal resources to help victims of mortgage fraud and predatory lending, we came across a comprehensive, well put together list of mortgage fraud resources by MortgageNewsDaily.com™ that provides information and direct links available nationwide as well as state-by-state.

Report Mortgage Fraud and Identity Theft (Powered by MortgageNewsDaily.com™)

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