What Mortgage Lenders Look For

February 29, 2008 By Erica Barton

Obviously, potential mortgage lenders look at your income for the last two years and your credit score when determining if you are “home loan-worthy.” However, income can now be “stated,” and bad credit does not mean you will be unworthy in getting a loan. Bad Credit is just as attractive to many lenders as good credit since it means a lender can charge you a higher interest rate and get you to pay more points and fees to get a better rate. In fact, since there are so many “secret” factors that go into lending you money, by simply making a few tweaks before applying, you can get approved for the best of the best loans. Here are some other factors Potential Home Loan Lenders look at when deciding if they should lend to you or not.

1. Are your credit accounts current? If your accounts are not current now, then you are not making enough money to make your mortgage. Get those balances current before applying for a credit card.
   
2. Have all of your balances been paid on time within the last 12 months? Paying on time for 12 straight months will make you an “A-Paper” borrower, something lenders consider just as important as your score. If you are an “A-Paper” borrower, you will get bumped up to the better end of loans you credit score will qualify you for. Therefore, go 12 months with timely payments to give you that extra boost regardless of your score.
3. Do you have a lot of negatives on your credit report? Negatives are usually late payments, balances over their limits, and items charged off for collections. You can “dispute” these items on your credit report and have them removed, which will make you look more attractive in the application process and raise your score at the same time. (Plus it only takes 30 days to do.)
4. How many times have you applied for credit in the last three to six months? Too many credit inquiries lowers your score and says you are trying to get yourself into a heap of debt. Try to make it through three to six months without applying for new credit before applying for a home loan.
5. How much money do you have to pay towards other credit on a monthly basis? A creditor will figure your mortgage at approximately 50% of what you make. This number varies depending on the lender. Your credit report totals all of your payments right up front. If you are paying more then 50% towards credit cards and other loans, then you will most likely be rejected for a mortgage. Ask your creditors to lower your interest rates so that the total monthly payments on your credit report will go down. Also, try to pay down as much of your credit balances as possible so that you can get a higher pre-approved mortgage amount.
6. How much longer will you be paying your car loan? If you have a car loan, and you only have one year’s worth of payments left, mortgage lenders will usually not take that debt into account when calculating your potential mortgage amount. Therefore, if you have more then one year of payments left, pay it down to one year in order to get a higher mortgage.

Remember, knowledge is power. A pre-approval letter is knowledge and it gives you bargaining power when it comes to home loans. By cleaning your credit before applying for a mortgage, you can bargain for the best loans and make the toughest home offers. Do these things before applying for a loan, and soon you will own the home of your dreams.

Posted in credit score, financial planners, financial plans, financial problems, investing, lending, loans, mortgages, personal finance, real estate

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