This Article Is About How To Prepare Credit For Mortgage And Get Approved
Home Buyers planning on applying for a home loan should consult with a loan officer and 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 report. It takes time to correct errors on the credit report. If credit scores are low, there are some quick fixes in boosting credit scores quickly. Again everything takes time. Instead of waiting at the last minute, borrowers need to consult with a loan officer. Review credit report and credit scores. See if there are ways to prepare credit for 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 on How To Prepare Credit For Mortgage is by having low credit card balances of 10% of the credit limit.
Consumers should have all of credit card balances paid off at least two months before planning on applying for a mortgage loan. It will take a month or two for the credit bureaus to have credit card balance information updated on credit report. Once the lender pulls credit, the credit scores will be used throughout the mortgage application and approval process to date of closing. It is the best interest to have little to no balance on credit cards.
This is because that will maximize credit scores.
How To Prepare Credit For Mortgage By Not 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 that they cannot get a home loan with unpaid collection accounts. That is not true. Paying off an old dormant collection account with an unpaid balance, credit scores will drop. What happens is that the credit bureaus re-activates 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 need to pay off an old unpaid collection account, do so by negotiation of doing pay for delete on the credit balance.
What this means is that the creditor will delete the derogatory item off the credit report in lieu of payment or settlement.
Do Not Dispute Derogatory Item During Mortgage Process
Many people with bad credit hire credit repair companies or try to repair their credit on their own. Borrowers do not need credit repair to qualify for mortgage. Hiring credit repair is not How To Prepare Credit For Mortgage. Many times credit repair can backfire and do more damage than good.
The way credit repair works are 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. The credit bureaus then contact the creditor about getting the validation to the claim. If the creditor does not respond back in 30 days, the credit bureaus need to remove the disputed credit items. Unfortunately, many times credit bureaus do not follow the federal law of deleting the unverified derogatory information. They leave the dispute on the credit report. The derogatory item on the consumer’s credit report states item in dispute and consumer disagrees. What this statement on the credit report does is 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. Many times, I have 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 if consumers have no active credit trade lines that credit scores are low. Consumers no credit or closed out all of the 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 credit balance and good credit. 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 And Apply For New Credit
Consumers can apply for credit but do not apply for too much credit. Every time consumers apply for credit, a hard inquiry will drop credit scores by 5 points. Too many inquiries are frowned upon by mortgage lenders.
Home Buyers can have prior bad credit and low credit scores and qualify for a mortgage loan. However, 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. The past 12 months’ payment history will be carefully reviewed by a mortgage underwriter.
April 8, 2021 - 4 min read