Mortgage Programs

Understanding Your Credit Can Save Thousands

Lenders will look at several things when evaluating your credit including...

• Credit History
• Assets
• Liabilities
• Residence
• Income History

Credit History

Good credit is the only item in this list that can qualify you for a loan by itself. Your credit history is made up of several items. Including things that are reported to the three major credit bureaus. These things include installment loans and revolving credit and any public records that you may have like judgements and bankruptcies. Information found in a credit report include how long an account has been opened, what the available credit is, what the payments are, and whether or not the payments have always been on time.

Lenders decide to give you a loan based on your credit report and credit score. Your credit score is based on all the items found in your credit report. However just because you have a good score doesn't mean you will qualify for a loan. Your score is based on an algorithm that the 3 major bureaus use. Your credit history and payment history are just as important as the score they provide. Sometimes, with new credit, a few payments and short history can have a decent score. However most lenders require more than 12 months of history before they consider a tradeline in your credit.

The best way to be safe is to make sure there aren't any negative items in your report and pay all payments on time. However just because you may have a few blemishes and negative items doesn't mean you can't get a loan. Often there is a good explanation for any negative items and some lenders will overlook these things.

Assets

The next thing lenders consider is whether or not you have any available assets. Assets can be many things including 401k, investments, savings, checking account, homes that are paid off, stocks, bonds, etc... The more assets you have the better chance at qualifying for a better loan. Sometimes just having assets can allow a lender to consider someone with questionable credit. Just because you don't have any assets does't mean you won't get approved it just helps.

Liabilities

Liabilities are anything that you owe money for. Anything that you make payments to is a liability. This includes credit cards, car loans, etc. The major factors for liabilities are the amount you owe compared to your available credit, how long you have had the tradeline opened and whether you make all the payments on time. Child support is considered a liability and is considered debt.

Residence

Underwriters will look very closely at your housing situation. First time home buyers don't always need a housing history. It is best to have at least 12 months of cancelled rent checks. Many programs will ask for proof of on time payments for up to 24 months. It makes a difference whether or not you pay your rent to a landlord or a family member or friend. It is always best to rent from a management company or make sure you pay all your payments with a check that way you will have proof to show the lender.

Income History

Are you a W-2 paid wage earner or a self employed individual? Your income can come from many places. The thing to remember is you must be able to prove it and it must be guaranteed for the next 3 years. The type of job you have doesn't matter just that you have had a job for 2 years and you are in the same line of work. Special exceptions are made for college students before or after graduation. Just like with rent you need to be able to prove your income, the exception is if you have top tier credit. Sometimes it is acceptable to use personal bank statements to prove income.