What You Should Know

What You Should Know

What You Should Know When Applying for a Home Loan

Learn What Mortgage Loan Officers Look for 

Debt-to-income ratio influences your FICO credit score, home loan application approval and mortgage rates. Exercise caution in your financial activities and review your credit history regularly before applying for a mortgage loan. Learn which mistakes could result in higher mortgage rates, or worse still, loan rejection

7 Common Credit Mistakes that Can Impact Your Mortgage Loan Approval 

  1. Opening or closing credit accounts: It is important to demonstrate a history of responsible credit. A new credit card could increase your debt-to-income ratio and reduce your credit score. Closing a credit card to improve your rating is not a good idea either. It could lower your overall available credit and negatively impact your score.
  2. Not having a credit card or loans in your name: You cannot build a credit score without having a credit card or loans. Simply being added to someone else’s credit card account is not an accurate reflection of your credit history. 
  3. Making a large purchase: Whether it is a car, furniture or appliances, refrain from large financial transactions that increase your monthly debt payments and debt-to-income ratio.
  4. Owing child support or alimony if your finances are not in great shape: Being mandatory monthly payments, they are treated like credit card debts and are part of the debt-to-income ratio calculation (can also be reported to your collection area, damaging your credit score). 
  5. Having business debt: This is not separate from your personal finances and will show up on your credit report.
  6. Credit changes: Even if a lender has approved your mortgage, this does not mean “the deal is through”; many lenders monitor your credit throughout the process and if a new debt or trade line is open, they will investigate it to find out if it affects your monthly payments. Therefore, you shouldn't open a new trade line or take out new credit once you have started an application process. New lines of credit and missed or late payments can result in a longer process, more verification, and can affect your ability to complete the loan. 
  7. Not checking your credit reports: It’s important to check your credit reports from all three major bureaus (Experian, Equifax and TransUnion) on a regular basis to find and fix errors that could hurt your credit score. Once a year, you can get a free credit report at myfreecreditreport.com 

Your Credit Score

Credit scores are created through a software program--there is no mystery. A trade line or line of credit does not weigh in or count as valid until it is one year old. The opening of a new trade line is only negative when you do not treat it properly. When you open a new credit card, you do not want to charge more than 20% of the available balance. Also, you want to make your first payment on that balance as soon as possible so that it will report into consideration given by the score/ credit model. The credit model will look at your overall cumulative balances versus your cumulative amount of credit available. 

Then, it goes to levels--how long is the trade line open? A trade line that is open longer can have a higher balance, and not upset the model. By opening a credit card, and having a high available balance, it will contribute to your overall “picture” in a more positive way. It will look at each credit card, how long they have been open, and how much is owed against it, and lastly, how many delinquencies you have. Any delinquency less than 2 years old will have a minimal effect. A current late payment of 30 days can cost you up to 40 points on your credit score. Some companies, after you bring the payment current, will allow you a one time courtesy of removing the late payment after you bring it current (make an on-time payment). 

Collections

Collections can report every month or they can report sporadically. Anytime that you make a collection or make a payment on a collection, you should make the request to have it deleted from your report. Some companies will, some won't, but if you do not ask it is NOT going to happen. If they do remove it, then you will receive the points back which you lost when the collection reported against you. Collections that read as a charge off on your credit report no longer contribute after the 2 years and are not considered as debt that needs to be paid off after the mortgage company. 
Being a first-time homeowner can be both exciting and stressful! Finding the right lender and applying for a loan is overwhelming. Dividend Mortgage provides access to a variety of programs including low and no down payment mortgage loans to meet your needs. Count on us for the right financial tools to realize your dreams. 

Call 269-321-8950 or contact us online to set up a consultation for a mortgage loan in Michigan. 
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