From the Desk of Don Draughn, Mortgage Professional

Website:  http://ahfmortgage.elliemae.net/ddraughn

Alright, you've decided you want to purchase your first home and you find yourself asking this question, "Where do I go from here?"  This post is Part One of an eight part series to give you the direction you need to get on the right path to home ownership. 

There are many steps that you have to take to get to the closing table to purchase your first home.  I have listed them below and plan to deal with each one in a seperate post.  They are:

1. Find out what is on your credit report.  (The main subject of today's post.)
2. Obtain mortgage preapproval.
3. Select a Buyer's Agent.
4. View home that fit your pre-approval.
5. Make an offer on your new home.
6. Submit your mortgage application.
7. Take your final walk through your new home.
8. Close on your new home and move in.

 

Find Out What Is On Your Credit Report. 

Your credit report is the most important tool that any lender has at their disposal.  It is a snap shot of your credit history that helps the lender know how well you have handled credit in the past and gives them an indication of how well you will handle credit in the future.  Having a good credit history is very important so you need to know what is on your credit report.  Inaccuracies are not uncommon and can make the difference in you being able to obtain a mortgage to purchase your new home.  That being said, let's take a look at what lenders see when they look at your credit report.

The first part of your credit report that lenders look at is your credit score.  Most lenders, whether you are applying for a mortgage, a car or even a credit card, will obtain what is called a "Tri-merge" credit report.  This is a credit report that has information from all three of the major credit reporting agencies - TransUnion, Experian and Equifax.  Each agency uses a formula made up of your total amount of available credit, the total amount of that available credit that has been used (credit balances), the total number of times you have applied for new credit in the last 90 days and your payment history for the credit you have.  Using this formula, each agency arrives at a numerical score to represent your credit history.  This score can range from 300 on the low side to 850 on the high side.  The higher the score the better because this is the starting point that mortgage lenders use to determine which mortgage program you are qualified for.

The second part of your credit report that lenders look at is your payment history.  They are most interested in your payment history for the last 12-24 months with the last 12 months being the most important.  Through statistical analysis, lenders have learned that borrowers who have had late payments in the last 12-24 months are more likely to pay late in the future.  This is why it is so very important to do everything you can to make your credit payments on time.  The more recent a late payment appears on your credit report, the more it affects your credit score negatively.  The lower your credit score is the less likely you are to be approved for a mortgage to purchase a home.  Everything works together.

The third part of your credit report that lenders look at is derogatory credit such as collection accounts and public records such as judgments, tax leins and bankruptcies.  All of these have an affect on your credit and give lenders and indication of your credit responsibility.  If you have collection accounts that show as "charged off" this tells the lender that you may not be as responsible as they would like for you to be so they may either require that you pay off the collection accounts to be approved or they may decline your loan all together.  If you find collection accounts on your credit report you should try to get them cleared up immediately so you can restore your credit as soon as possible.  The same goes for judgments that show up in the public records section of your credit report.  These should be cleared up as soon as possible as well.  You also need to remember that collection accounts and judgments will remain on your credit report for seven years even after you have paid them off.  However, showing a zero balance on these accounts is better than them still being owed.

If you have had a bankruptcy, all is not lost.  Even though a bankruptcy stays on your credit report for 10 years from the date of discharge, most lenders want to see that you have been able to re-establish credit within the last two to three years before you will be approved for a mortgage.  There are rare exceptions to that where a lender will grant a mortgage loan before two years after a bankruptcy but they are very rare.  You should work hard to show that you can handle credit in the future.  After all, you want to purchase a home and your credit will get you there.

Below is a video that I believe will further explain the importance of credit.

Don Draughn is a Professional Mortgage Consultant and a Sale Manager at Affordable Home Funding, Inc. located at 900 Perinton Hills Office Park, Suite 970, Fairport, NY, 14450.  His phone number is (585) 425-5811 or Toll Free (877) 223-0480 ext. 111.  He is available to serve your needs for residential and commercial mortgages in Rochester NY and all of New York State.

REGISTERED MORTGAGE BROKER - N.Y.S. BANKING DEPARTMENT

Loans arranged with 3rd party providers.  Borrowers must qualify.