| Most mortgage loan advertisements promise | | | | 10% is determined by the number of open credit |
| rock-bottominterest rates, low down payments, and | | | | accounts thatyou have and the mix of types |
| virtually guaranteed approval within justa few days. But | | | | (revolving, installment, and mortgage). |
| for many prospective homeowners, the trip from | | | | 35% is derived by measuring your repayment history |
| advertising promisesto "sign-on-the-dotted-line" reality | | | | and lookingat adverse credit items such as |
| can be a long and confusing one. | | | | foreclosures, judgments, bankruptcies andnegative |
| Is it all just one big roll of the dice or are there | | | | public records including tax liens and wage |
| quantifiablefactors that a lender uses to qualify you for | | | | garnishments. |
| a loan and determine yourinterest rate? Let's take a | | | | 30% is based upon a formula that includes your |
| look and see. | | | | balance dueacross all open loans, the types of loans |
| Understanding mortgage rate advertising campaigns | | | | and the number of loan or credit cardaccounts that |
| Generally the qualifications for these "almost too good | | | | have an open balance. |
| tobe true" low interest mortgage programs are quite | | | | 15% is based upon the length of you credit historyor |
| high. Many are so high that mostpeople who respond | | | | how long you have had a credit history on file. |
| to the advertising won't qualify for them. | | | | 10% is based upon the amount of new credit in your |
| Why do lenders even bother spending money on | | | | accountincluding how long it has been since you |
| advertising amortgage program that most people can't | | | | opened a new account, how long sinceyour last new |
| qualify for? Mortgage promotions bringin large numbers | | | | credit inquiry and how good your most recent credit |
| of applicants. Some will qualify for the promotional rate | | | | history is. |
| andothers will not. The lender hopes to place everyone | | | | Here's how to improve your score: |
| who applies into somemortgage program that they | | | | |
| offer even if it wasn't the one the borrowerresponded | | | | 1. Get a copy of your credit report and review it for |
| to. | | | | errors. |
| Navigating the Home Mortgage Qualification Process | | | | Use the credit bureaus error reporting and correction |
| The lender reviews your credit and overall | | | | system to addressany serious errors. |
| financialcondition when qualifying you for a particular | | | | 2. Pay all of your bills according to the payment |
| mortgage program. Most lendersconsider these items: | | | | schedulethat you agreed to. |
| - Stability - Length of time on the job and the number | | | | 3. Avoid opening a lot of new accounts in a short |
| ofjobs held. | | | | period oftime and especially avoid opening any new |
| - Liquidity - Availability of down payment and other | | | | accounts before applying for amortgage. |
| on-handand reserve funds necessary to close the | | | | 4. Don't apply for credit cards that you have no |
| loan. | | | | intention ofusing, and close any accounts that have |
| - Credit - Previous loan repayment history as well as | | | | zero balances and that you do notintent to use again. |
| certaincredit-related scores. | | | | 5. Keep your credit balance low in ratio to your overall |
| - Income - Ability to service the loan by making | | | | availablecredit. |
| therequired payments. | | | | 6. Pay off credit card bills instead of transferring them |
| - Liabilities - The total amount of money that you owe | | | | tolower interest cards and closing the previous |
| otherthan your current mortgage or rent payments. | | | | account. It could actuallyhurt your score by disturbing |
| The credit investigation causes borrowers the most | | | | the ratio of open debt to number of cards. |
| concernand that's probably because it's the most | | | | 7. Monitor your FICO score by getting a new copy of |
| misunderstood of the approval steps. Thereis nothing | | | | yourreport every six months. Once your score moves |
| secret going on here and mortgage lenders are very | | | | into an acceptable rangethen either refinance your |
| up frontabout what they will be checking. | | | | existing mortgage, if interest rates warrant,or apply for |
| Shining the light on your credit history | | | | a mortgage if you have been turned down in the past. |
| Credit bureaus use a rating of zero through nine for | | | | Additional ways to improve your chances of |
| each ofyour credit lines. They put either an "I" (for | | | | gettingapproved. |
| Installment loan) or an "R" (for | | | | While your FICO score is the key determining factor |
| Revolving loan) in front of the number. I0 or R0 | | | | ingetting approved for a home mortgage, there are |
| indicates that the credit lineis "too new to rate". I1 or R1 | | | | some other factors which affectthe approval process. |
| is the best rating and R9 or I9 is the worse. | | | | Show good prospects for continued employment |
| This worked fine for years until credit usage became | | | | If your job prospects are a bit hazy then a lender |
| more widespreadand the amounts borrowed became | | | | maychoose not to fund your mortgage even though |
| significantly greater. That's when lendersbegan looking | | | | you have high scores. Try not tochange jobs within 6 |
| for a statistical model which could predict how you | | | | months of applying for a mortgage if you can possibly |
| wouldperform on a loan based upon measurable | | | | helpit. |
| factors. This evolved into the FICO scorewhich plays a | | | | Have a large down payment |
| prominent role in determining if you get a home | | | | Although some mortgage lenders advertise low or no |
| mortgage as wellas what the terms of the mortgage | | | | downpayment programs, they are the exception to |
| will be. | | | | the rule. Most lenders want to see |
| FICO stand for "Fair Isaacs Corporation", the name | | | | 20% down. If you have less, then you may get passed |
| ofthe company that developed the software that | | | | over or, at the very least,be required to pay expensive |
| calculates the score. FICO scorescan range between | | | | PMI (Personal Mortgage Insurance) each month |
| 250, the highest degree of risk and 850, the lowest | | | | untilyou do have 20% equity in your home. |
| degree ofrisk. All else being equal, the higher your FICO | | | | Stay in a realistic price range |
| score the better the loanterms will be. | | | | Don't try to buy more house than you can comfortably |
| Taming your FICO Score | | | | afford. |
| If you are turned down for a loan, or are required to | | | | A lender is inclined to say "no" if he sees that too |
| pay a | | | | much of your income isgoing to be taken up by your |
| "risk premium" because of your FICO score, all is not | | | | mortgage payment. |
| lost because you canimprove your FICO score. Since | | | | Be Honest |
| you are never going to be approved for amortgage if | | | | Don't try to hide any "bad news" including a pending |
| your FICO scores are so low than lenders are scared | | | | joblayoff, strike, etc. If you lie to your lender you |
| away, it isworth trying to get your score up. If you | | | | probably will get caught. |
| were given a mortgage at a high ratebecause of your | | | | Now that you know all about the mortgage approval |
| score then it's worth raising your scores and | | | | process,are you ready to buy a new home? It can |
| refinancing for alower rate in the future. | | | | look like a complicated process, butyou can do it if you |
| How your FICO score is calculated. | | | | have your financial affairs in order. |