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What you should know about Credit and Mortgages

Mortgage and Lending with First Option Mortgage 269761

In a world of easy access to the internet, I’m amazed at how difficult it still is to find information about obtaining a mortgage loan. I guess there isn’t a one stop site to address this stuff and Loan Officers are so regulated that we’re not allowed to post it on our websites. Luckily we have sites like Active Rain which allows us to post this information.  

I’ve probably blogged this before, but I feel compelled to write it again. After the last few months of doing loans and not being to close most of them, I find myself having to write it again. I asked a couple of Millennials about what they thought of my blogs and was told they are too long and boring (HAHA). I love constructive criticism.

Each week I will cover a certain topic about obtaining a loan in order to keep it simple and to the point. As with all other informational pieces, always talk to me or a loan officer first if you feel unsure about what I’ve written. Every lender has a different spin to how they underwrite loans, so think of this as informational, not educational.

CreditSpeak to a loan officer prior to paying off  or not paying off any accounts:

  •         Get a copy of credit report from annualcreditreport.com
  •         Collections whose reporting date is over 1-year old should be paid off at closing (if needed)
  •         Collections less than 1 year from reporting date should be paid off (except if medical/if needed)
  •         For best performance, must have 3 lines of credit reporting for at least 1 year for FHA and 2 years for Conventional
  •         Judgments, Tax Liens, Apartment Collections must be paid off
  •         Bankruptcy seasoning depends on program (ask the loan officer)
  •         Disputed accounts must be resolved or removed
  •         The middle of 3 scores or the lower of 2 scores will be used to determine program
  •         If you have student loans without payments listed, you’ll need to get the monthly payment based on when you start making payments, otherwise up to 2% of the balance will be used
  •         If your scores are lower than 600, you probably don’t have enough or any open credit lines. Go open secured credit cards (2 preferably)
  •         Don’t try to reach for an 850 score. For conventional loans, 760 is the highest needed score for best pricing. For Government loans, 660 is the highest needed score for optimal pricing (ask loan officer if different)
  •         Credit score and Credit profile are 2 different things. You can have an 800 credit score and still not qualify for a loan
  •         Make sure your name, social security number and addresses match on the report. Make sure that the accounts on the report are yours
  •         Credit repair companies tend to dispute all accounts including ones that don’t need to be disputed which can cause a delay in getting financing
  •         DO NOT pay someone to fix your credit since all the FREE information can be found on the websites of the 3 major bureaus: Equifax, Experian, TransUnion
  •         Loan Officers can run what is called Rapid Re-score or Credit Wizard to determine what needs to be done to the credit report to increase the score. DO NOT pay money up front. It is illegal for a company to collect those fees in advance. They must collect the fee at closing
  •         If you are late on credit cards every single month, don’t apply for a loan. Really.
  •         If you are behind on child support payments and have no excuse for it, don’t apply for a loan
  •         If you filed chapter 13 bankruptcy last year and dismissed it this year, you have to wait 1 year from the dismissed date to get a loan
  •         If you have a judgment from an apartment complex and cannot prove that it is NOT yours, do not apply for a loan until it is resolved
  •         If you had a short sale or a previous foreclose within the last year, do not apply for a loan
  •         DO NOT use web-based online companies as your source of credit reporting. Those companies do not obtain credit reports; they obtain credit experiences. You must give written or online security permission to obtain a report. Any other means is not an acceptable credit report
  •         DO NOT argue with a loan officer that your credit score is higher according to online credit reporting companies. Mortgage companies use different algorithms to determine scores
  •         Don’t be late on anything within the last 1 year. Don’t charge your cards to their maximum within 60 days of applying for a loan
  •         Each time you open a new credit line (car, installment loan, credit card) you will lose 7 points for the credit pull, around 4 points for having a new account and perhaps more depending on the type of loan you obtained, the company from where it originated, the balance to the maximum credit limit
  •         Avoid opening Installment type loans (cars, student loans, financial loans) because they close after they are paid off and you will lose points for not having the history of the account anymore. You will also lose a trade line so if you only have Installment loans as trade lines and they close, you no longer have any reporting credit and must wait an extra year to buy (some banks will allow alternative credit like rent and utilities, but it’s rare to find them)
  •         You do not have to have a credit file (or a score) to get a loan but it is very hard to find a bank who will manually underwrite a loan (most all banks use automation to pre-underwrite a loan)
  •         Becoming an Authorized User does not help you obtain a loan since you are not ultimately responsible for the loan. Instead, being a co-borrower will help you more
  •         Be aware that if you co-sign with someone and they agree to make payments either verbally or in writing, any unpaid debt will still affect your credit. Even a court ordered statement may not give you a loan if a loan is not paid on time (example: in a divorce)
  •         Some public records (bankruptcy, tax liens, judgments) are not reported on the credit bureaus, especially if a person used a Credit Repair company to have it removed. Just because it’s not showing on the credit report, doesn’t mean it won’t be found. It will be found just a few days before closing

Bill, what great information for anyone inquiring about credit or how to obtain a mortgage.

Bill Polack
First Option Mortgage - Suwanee, GA
Bilingual Spanish Loan Officer in Southeast US.

Thank you.

Jul 15, 2016 02:39 AM

Hi Bill Polack 

Thanks for a very comprehensive checklist of considerations and action items when contemplating applying for a mortgage.

We wish you great success with your blog posts and networking with other members of Active Rain!

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