This burning question is top of mind for the Buyers who attend our FREE class for first timer buyers.  We spend more than an hour teaching our students to think like a bank.  Banks want clients who will repay the loan.  They look at four risk factors concerning the Buyer and two risk factors concerning the home to be purchased.

First, you will have to give the bank information about your credit history and credit scores.  This is probably the single most important factor influencing your eligibility for a mortgage.  They look to see if you meet your debt obligations in a timely manner.  Our class goes into some detail about how to handle problems with low credit scores or no credit scores at all.

Second, you will show the bank how much money you make and how much is already obligated in monthly repayment of debt.  This is called your “debt to income ratio” and the bank has guidelines to assure you don’t take on too much debt.  In class, we review how much is o.k. and how much is too much.

Third, you will show the bank how you are going to make the down payment for your new home.  In most cases, you will need at least 3.5% of the purchase price of the home in your own money.  Some mortgages permit you to get a gift from a blood relative.

Fourth, you will tell the bank how much of the purchase price of the new home will be mortgage and how much will be down payment.  This is called “loan to value”.  The bigger your down payment, the lower the loan to value.  For example, if you make a 5% down payment, the loan to value is 95%.  If you make a 20% down payment, the loan to value is 80%.  Banks like low loan to value because you have more of your own money at risk.  You are less likely to default on the mortgage.

Once the bank checks you out, then they check out the home.  They order an appraisal to make sure the home is worth what you have offered for it.  They also have the title history on the home examined by an attorney to see who has an ownership interest in the home.  All these “owners” have to be paid off or removed from the title when you buy it.

THEN you get to buy the home.  It’s not simple.  Make sure you have good advisors when buying a home and GET INFORMED.

For more answers to your detailed questions, sign up and attend one of our FREE HOMEBUYER CLASSES!!

Each of the three major credit bureaus is going to give you a credit score.  This credit score is calculated differently by each of the bureaus. 

A company called Fair Isaacs invented the FICO credit scoring system. Each credit bureau has their own credit score; Equifax calls their score Scorepower, for instance. Each bureau also sells the VantageScore credit score, a competitor to FICO. Regardless of the system used, the credit score takes into account how much credit you have, how much you use it, how fast you repay your bills, if you have any legal or tax judgments recorded against you and so on.  Even though all three bureaus use VantageScore, credit scores will not be the same for all three. This is because they each track different information.

Not all scoring systems are the same so if you go to get your credit score from Fair Isaacs at FairIsaacs.com, the score will be higher than when you get a score from the credit bureaus.  A mortgage lender will look at all three credit bureau scores and select the middle of the three as the best measure of your current credit.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

First, you need to know that there are three major credit bureaus to whom your creditors report – Equifax, Experian, and TransUnion.  Some creditors may report only to one, some may report to two and some may report to all three.  When a mortgage investor (bank) looks at your credit, they want to see a report from all three bureaus.  This is because they can then look at ALL your credit.  This type of report is called a “three bureau merged report” because all three credit bureaus are reported on it and all your credit is “merged” on it.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

The Fair Credit Reporting Act states that you have the right to dispute any inaccurate or derogatory information on your report.  If you do have errors on your credit report, you will want to have them corrected as soon as possible.

You can either call or write to the appropriate credit bureau.  There are three major bureaus reporting on credit in the United States.  When you apply for a home loan, all three credit bureaus are checked by your mortgage consultant.  Each of these bureaus may issue a slightly different report on you.

In order to correct credit report problems, you will have to supply the bureau with the correct information in writing.  If you are unable to provide written proof of their error, you still have the right to formally dispute that account error with the credit bureau.  A good mortgage consultant also will be able to suggest a specific process to follow to make these changes.  Without a good credit report, the costs of your home loan can go up significantly.

Whhat happens to an old collection account which you have neglected to pay?  Just because they are no longer sending you invoices does not mean that this debt has disappeared.  Old collection accounts do not disappear.  If you had trouble in the past paying your bills, some of these accounts may have turned into collection accounts.

What that means is that the business where you owed money sold your debt to a company which specializes in collecting debts.  This company will be paid by the business when they collect the bad debt.  usually they receive a percentage of the debt payment as their commission.

Even if you have not heard from these creditors in years, more than likely they will show up on your credit report.  There is no way to get rid of these debts except to deal with the business or collection agency.  you may be able to negotiate a discount on the debt, but you will have to pay it to remove the reference on your credit report.  When you pay it off, be sure to save a copy of the cencelled check.  Often, the business will also send you a letter telling you the debt is paid and that they are removing references to it from your credit report.  Be sure to save these letters as well.  Clean credit reports are needed for you to be able to obtain a home loan.

If you haven’t checked your credit report in the last year, you will want to do this before you apply for a home loan.  What is your credit report?  It’s made up of any and all information obtained from businesses that have loaned you money in the last ten years.  If you haven’t borrowed any money for school or for a car or opened any charge accounts, you may not have a credit report.

The information on your report may or may not be correct.  Sometimes, errors are made when the data are entered.  Sometimes, other people’s information can get on your credit report by mistake.  old credit accounts, which you no longer use, may still be showing as “open” on your report.  Some accounts, which were past due but have been paid, might still show a balance due.

We recommend checking your credit report once a year.  If you don’t want to bother with this, be sure and check your credit with a good mortgage consultant if you plan to buy a house in the next year.  If it needs to be updated to make it more accurate, this will give you plenty of time.

When you make your monthly house payment which repays your mortgage loan, interest will be the biggest part of that payment.  Interest rates make a huge difference in the size of your house payment.  Look at the table below:

5% interest on $200,000 mortgage over 30 years:  principal/interest payment $1074.

6% interest on $200,000 mortgage over 30 years:  principal/interest payment $1200.

7% interest on $200,000 mortgage over 30 years:  principal/interest payment $1278.

So it’s important to qualify for the best interest rates.  Most home buyers don’t know that when you apply for a mortgage, you may not be receiving the best interest rate on your loan.  If your credit isn’t good, the bank will penalize you and quote you a higher rate for your mortgage. 

If you are borrowing money for a mortgage and you don’t have 20% towards the down payment, you will also be paying for insurance on the loan called mortgage insurance.  Your mortgage insurance rate is a percentage of the loan amount divided by the 12 monthly house payments.  It is added into the house payment.  If your credit is poor, the mortgage insurer will charge you a higher rate as well.  Higher interest and higher insurance rates will mean a higher house payment.  It’s worth your while to repair your credit and make sure you qualify for the best mortgage.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If you listen to the news, read the newspaper or keep in touch with what’s happening on the internet, you’ve undoubtedly heard of the “mortgage meltdown”.  Many people attribute this “meltdown” with triggering our current recession.  What really happened?

Banks relaxed lending standards and permitted borrowers with less than perfect credit to purchase homes.  Briefly, these borrowers didn’t qualify for the best loans with the best interest rates because they had poor credit.  But the banks let them borrow money anyhow.  The loans that these buyers received were loans in which the interest rate could go up substantially one or two years after purchasing the home.  After the interest rates went up, most of these borrowers were unable to keep up with the rising house payments and surrendered their homes to the bank instead. 

Today, these loans are illegal and were outlawed by congress as of May, 2007.  But they have done their damage.  Many banks and mortgage insurance companies suffered huge losses due to mortgage loan foreclosures.  These same banks and mortgage insurance companies have tightened credit standards so that YOU will have a much tougher time qualifying for the loans with the best interest rates.

Credit is EVERYTHING when applying for a mortgage.  If your credit is shaky or needs work, consult with a mortgage lender BEFORE looking for a home.  You may need to do some work to get those credit scores up.  Have the lender pull a copy of your three credit bureau merged credit report with 3 credit scores.  Be informed.  Knowledge is power.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.