Checking Your Credit Before Buying Home And Qualifying For Mortgage

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Checking Your Credit Before Buying Home And Qualifying For Mortgage

This BLOG On Checking Your Credit Before Buying Home And Qualifying For Mortgage Was UPDATED On August 6th, 2018

Two of the most important factors lenders look at is income and credit.

  • Income is important because lenders want to know borrowers are able to afford the following:
    • monthly mortgage payments
    • other housing expenses such as utilities
    • minimum debt obligations
    • make sure that the new home mortgage will not be a strain new homeowner
  • With credit, lenders will first check credit scores to see whether borrowers meet the minimum credit score requirements
  • Credit Scores dictate whether or not borrowers qualify for the particular mortgage loan program they are applying for
  • Meeting the minimum credit scores is not everything
  • Lenders will review consumer overall credit history on credit report
  • Will especially check for any judgments, tax liens, public records, credit disputes, and will especially see if consumer have been timely in making monthly debt payments for the past 12 months
  • Checking credit before buying home is strongly recommended
  • There are very simple techniques in boosting credit scores
  • Simply paying down credit card balances will do extreme wonders in boosting credit scores
  • Consumers with no credit or little credit, then adding secured credit cards will definitely instantly boost credit scores
  • Secured credit cards is the best easiest and fastest way of re-establishing your credit

Why Lenders Place So Much Emphasis On Credit

Checking credit before buying home is very important not just for qualification purposes but because it may save borrowers thousands of dollars over the term of their mortgage loan.

  • Many home buyers do not realize that there are simple techniques in boosting their credit scores and improving their credit
  • This is why checking your credit before buying home is so important
  • Lenders view a mortgage loan applicant’s credit and credit history as an indicator of the amount of risk the borrower has
  • If the borrower has a stellar payment history and high credit score, that is a great indicator that the borrower will continue to make his or her payments on time
  • Lenders understand borrowers may go through periods of bad credit due to extenuating circumstances such as periods of unemployment, divorce, medical issues, or loss of business
  • Having prior history of bad credit will not impact the mortgage loan applicant’s chances of getting a mortgage approval nor will it affect borrower’s mortgage rates
  • Mortgage rates are based on the borrower’s credit scores and with conventional loans, the loan to value
  • Lenders place much emphasis on credit because the borrower’s credit is the only way they can predict the probability of the future payment predictability of borrower and the borrower’s credit scores is how lenders assess risk
  • The lower the borrower’s credit scores are, the higher risk the borrower is and the higher mortgage rates that will be charged

Loan Level Pricing Adjustments also referred to as LLPA is the pricing adjustment matrix for higher pricing adjustments due to credit, credit scores, loan to value, and other risk level pricing adjustments.

Minimum Credit Score To Qualify For Home Loan

Minimum credit score to qualify for FHA Loans are 580 for a 3.5% down payment home purchase loan.

  • For conventional loans, the minimum credit score required is 620 credit scores
  • USDA Loans normally require 580 credit scores to qualify
  • VA Loans does not have a minimum credit score requirement nor a debt to income ratio requirement
  • However, borrowers can qualify for VA Loan with lower credit scores as long as they get an approve/eligible per Automated Underwriting System
  • Jumbo Loans normally require a 700 credit score and some Jumbo lenders will require a 740 credit score

How Credit Disputes Can Backfire On Home Buyers

Another reason why checking your credit before buying house is so important is to check for any outstanding credit disputes.

  • Disputes on derogatory credit tradelines is prohibited during mortgage process
  • Reason why credit disputes are not allow during mortgage process is because credit disputes automatically triggers the credit scoring model to negate the derogatory item from its scoring system
  • A credit dispute will automatically boost consumer credit scores
  • Retracting credit disputes will drop credit scores
  • Loan officers who issue a pre-approval with credit disputes is wasting their time because due to the credit scores, the pre-approval has no validity
  • The credit dispute needs to be removed and the loan officer needs to rerun credit and see what the new credit scores are
  • Medical credit disputes are exempt and so are zero balance non-medical collection credit disputes

Checking Your Credit Before Buying Home is not just important to maximize credit scores but Checking Your Credit Before Buying Home is equally as important to make sure that there are no credit disputes.

Having good credit and higher credit scores is very important when qualifying for home loans. Higher credit scores means lower mortgage rates. Lower rates means big savings over the term of the loan. Please contact Gustan Cho Associates at 262-716-8151 or text us for faster response.

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