Your Credit, You, and a Home Loan How You Can Improve Your Credit Score Here ph
Good credit. It’s needed before you purchase a car, finance any large item, or even get a credit card. However, credit is rarely as important with these items as it is when it comes to purchasing a house. Qualifying for a loan amount of that magnitude requires the bank knowing that the likelihood of default is minimal and that the risk in securing a loan for a buyer will have a low chance of foreclosure. Therefore there are certain things that a bank wants to see before saying “yes” to a home loan. Credit Score Prior to the housing boom of 2006 credit scores didn’t play a large factor in getting a home loan. As a matter of fact, FHA loans and VA loans were not “credit score driven”. That means that as long as a borrower didn’t have many derogatory items on their credit history, they were easily able to secure a home loan, and purchase the home of their dreams.
However, when foreclosure rates began to skyrocket in late 2008, the banks changed the credit scoring requirements. After the bailout in 2009, the credit score restrictions became even tighter. As of October 2009, the chances of a borrower being approved for a home loan with a credit score of 620 or below were slim to none. Debt Ratios Banks scrutinize a borrowers debt ratios. The bank wants to make certain that a consumers debt load leaves them enough left over each month to easily maintain a mortgage payment. If a consumer’s current debt loan exceeds 40 percent of their income, no bank will underwrite a loan. However, high debt ratios are not a “death sentence” when it comes to qualifying for a home loan. There are two ways a consumer can quickly improve their debt to income ratios. Pay down the debt - This is the most “common sense” approach to lightening a debt load. Paying down debt means an increase in your available credit and will increase your credit score in less than 30 days. The more debt you pay off the higher an increase in your credit score, meaning that you will get closer to the 620 score that is required in a home purchase. However, don’t close open accounts, as this will have a negative impact on your score. Once you’ve paid down credit cards, personal loans, and student loans, leave the credit lines open but don’t use them. Increase your available credit - If you have maintained timely payments with credit card companies, you can call the creditor and request a credit line increase. For example, if you have a card with a $5,000 credit limit, increasing this to $8,000 will improve your debt to income ratio and by providing you with more available credit, decreasing your debt to income ratios.
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However, like paying off your debts it is important to not utilize the additional credit you are granted. Derogatory Items Like debt to income ratios, derogatory items can mean the difference between a loan approval and a loan denial. Consumers that have had accounts placed in collection over the last 12 – 24 months are considered high risk. Yet this is not necessarily a scenario that can’t be overcome in a home loan application. If you have accounts that are in collection that do not belong to you, you can dispute these items on your credit report and have them removed. However, if the debt is valid and does belong to you, paying off the collection will make a bank look upon your application much more favorably. All collection accounts are not created equal either. Medical collections, for example, are not taken into account by a bank’s underwriting department, thus these may not need to be cleared and might not be counted against you in a home loan application. Speak with a loan officer for more details. Bankruptcies, providing they have been discharged, for two years or longer are also not frowned upon by lenders. Active bankruptcies, on the other hand will disqualify you for a home loan. Take the necessary steps to get a bankruptcy discharged as quickly as possible so that you can take your credit on the road to recovery. In today’s consumer driven market, credit is more important than ever before. Making sure that yours is up to par before applying for a home loan, will make the process much more simple and less stressful. Check your credit and your score to know where you stand before applying for a home loan. Now it's your turn. I want to know what you think. Comment below with a quick response...and I'll send you a free gift.
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Do's and Dont's of the Credit Card Game Here pf Futhermore: Your Credit, You, and a Home Loan
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