CREDIT ASSESSMENT
Your credit history or credit profile is extremely important to you, because it significantly affects your ability to obtain a mortgage. Because a home mortgage involves lending a large sum of money, lenders look at how you've paid other loans and debts to indicate how you will repay your mortgage. When your credit is less than perfect, all other qualification criteria such as equity, stability, income, assets, and so forth, play an even larger role in the approval decision.
How much are you worth? Do you have enough assets to pay your bills if you lose your job?
Lenders want to see:
Will you have enough money to pay your mortgage payment after your other bills are paid?
Lenders want to see:
Avoid
Your credit history or credit profile is extremely important to you, because it significantly affects your ability to obtain a mortgage. Because a home mortgage involves lending a large sum of money, lenders look at how you've paid other loans and debts to indicate how you will repay your mortgage. When your credit is less than perfect, all other qualification criteria such as equity, stability, income, assets, and so forth, play an even larger role in the approval decision.
Lenders understand that there can be legitimate reasons for credit problems. You might have experienced unemployment, illness, or other financial difficulties. If that happens, it's important to discuss it honestly with your lender and prepare a written explanation of your situation.
BOTTOM LINE: Continually protect and improve your credit now, if you haven't already done so. Resist the temptation to overextend yourself. Pay all of your bills on time. Remember that negative items can remain on your credit history for up to seven years.
Credit History
When you apply for a loan, lenders verify your credit with credit bureaus.
This is what lenders look for:
- Mortgage, rent, equity line, and second mortgage payment records
- Balance and payment record on consumer loans, such as car loans, student loans, and credit cards
- Bankruptcy records
- Co-signed loans and property foreclosures
- Current debt collection records (open collection items, charge offs, judgments, or liens)
How much are you worth? Do you have enough assets to pay your bills if you lose your job?
Lenders want to see:
- Income (including dividends, alimony, and child support)
- Savings
- Investments
- IRAs, 401Ks, and KEOGH plans
- Cash value of your life insurance
- Equity in real estate
Will you have enough money to pay your mortgage payment after your other bills are paid?
Lenders want to see:
- Income, including salary, investment dividends, spousal support, child support
- Debt-to-income ratio (your total monthly debt divided by your monthly income)
- Employment history
Avoid
- Bankruptcy
- Late payments
- Paycheck garnishments
- Collections
- Too many debtors
- Too little credit
