How To Prepare Credit For Mortgage

How To Prepare Credit For Mortgage and Get Approved

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers how to prepare credit for mortgage and get approved. Homebuyers planning to apply for a home loan should consult with a loan officer to see if they can prepare credit for a mortgage. Credit scores will determine whether or not borrowers qualify for a home loan. Credit Scores will also be the determinants of mortgage rates. ]

Many consumers also have errors on their credit reports. It takes time to correct errors on the credit report. If credit scores are low, there are quick fixes to boost credit scores quickly.

Again everything takes time. Instead of waiting at the last minute, borrowers need to consult with a loan officer. Review credit reports and credit scores. See if there are ways to prepare credit for a mortgage. Even if credit scores are good, try to get them higher to get the best available mortgage rates. To get the best available mortgage rates, consumers need credit scores of 740 or higher.

Credit Card Balances Affect Credit Scores

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Borrowers with credit cards maxed out to credit limit. This will hurt credit scores. The best way how to prepare credit for mortgage is by having low credit card balances of 10% of the credit limit.

It will take a month or two for the credit bureaus to have credit card balance information updated on the credit report. Once the lender pulls credit, the credit scores will be used throughout the mortgage application and approval process to the closing date. It is best to have little to no balance on credit cards. This is because that will maximize credit scores.

How To Prepare Credit For Mortgage Without Paying Old Collection Accounts

Borrowers do not have to pay off unpaid collection accounts to qualify for a mortgage loan. Many home buyers or homeowners who need to refinance think they cannot get a home loan with unpaid collection accounts. That is not true.

Credit scores will drop by paying off an old dormant collection account with an unpaid balance. What happens is that the credit bureaus re-activate the old unpaid collection dormant account.

Re-activating older collections, credit bureaus report it as a new collection account when they update the paid collection. This will plummet the credit scores. If you need to pay off an old unpaid collection account, do so by negotiation of doing pay for deletion on the credit balance. This means the creditor will delete the derogatory item off the credit report instead of payment or settlement.

How To Get Mortgage Approval With Late Payments After Bankruptcy and Foreclosure

If you have late payments after bankruptcy or foreclosure, the best thing to do is to get new secured credit cards to offset the late payments. Get three to five additional secured credit cards with at least a $500 credit limit. Never be late, and monitor your credit report. Get signed up with a third-party credit monitoring service like Credit Karma.

Do Not Dispute Derogatory Item During Mortgage Process

Why not challenge the degrading subject during the mortgage processMany people with bad credit hire credit repair companies or try to repair their credit independently. Borrowers do not need credit repair to qualify for mortgage. Hiring credit repair is not how to prepare for mortgage. Many times credit repair can backfire and do more damage than good.

Credit repair works by disputing derogatory information by writing to the credit bureaus and stating that the item is inaccurate or the derogatory item does not belong to them. However, you need supporting facts and documentation showing the derogatory credit tradelines are legitimate and not just claims.

The credit bureaus then contact the creditor about getting the validation for the claim. The credit bureaus must remove the disputed credit items if the creditor does not respond in 30 days. Unfortunately, credit bureaus often do not follow the federal law of deleting unverified derogatory information. They leave the dispute on the credit report.

How Credit Dispute Process Work

The derogatory item on the consumer’s credit report states the item is in dispute, and the consumer disagrees. This statement on the credit report disqualifies borrowers from proceeding with the mortgage application and approval process until the credit disputes are fully retracted. Unfortunately,

Once the credit disputes are retracted, this causes the consumer’s credit scores to plummet. I have often seen a drop of 80 or more points when a dispute gets retracted.

Credit disputes on medical collection accounts are exempt. Credit disputes on derogatory accounts with zero balances are exempt.  Many times, lenders with overlays will request all disputes to be retracted.

How To Prepare Credit For Mortgage: What If I Have No Credit?

Having no credit is like having bad credit. Chances are, credit scores are low if consumers have no active credit trade lines. Consumers with no credit or closed out all of their active credit accounts get a few secured credit cards and start re-establishing credit. Consumers can also have their name added as an authorized user on a credit card account with someone with a low and good credit balance. Make sure that the main credit card holder is a responsible person with stellar credit. If the main credit card hold is late on their monthly payment, authorized users will get dinged and defeat the purpose.

Do Not Be Late on Payments or Apply For New Credit

Apply for a new loan as soon as possible

Consumers can apply for credit but do not apply for too much credit.  A hard inquiry will drop credit scores by 5 points whenever consumers apply for credit.  Too many inquiries are frowned upon by mortgage lenders. Homebuyers can have prior bad credit and low credit scores and qualify for a mortgage loan.  However, they cannot have recent late payments in the past 12 months and expect to get a home loan approval.  Make sure never to be late on the minimum payment due.  A mortgage underwriter will carefully review the past 12 months’ payment history.

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