 |
 |
 |
 |
 |
 |
 |
(209) 839-0500
office
(209) 343-3819 fax
Maxine Ellis
Owner/Certified Financial Lender
"Lenders know by your credit score if you are a high or low credit risk. With a higher credit score you are less likely to default on your home loan. Because of that lenders are willing to give you a lower interest rate and are more flexible when underwriting your loan."
There are tremendous home loan benefits that come with having good credit? Take the time to understand the 5 Factors Of Credit Scoring and how to Increase Your Credit Score before you apply for a mortgage. It will save you thousands over the life of the loan.
Lower Rates and Payments
Probably the biggest advantage that comes from having a good credit
score is being able to receive a lower mortgage interest rate. The
reason you have a good credit score is because every month by paying on
time you display your ability to repay your debt.
Less Documentation, Less Hassle
Another big advantage to having a good credit score is you are more
likely to qualify for a loan where you don’t have to document your
income and assets as much. These loans are known as stated income and no
doc or low doc loans.
If you get a stated income or no-ratio loan you only declare your income without showing pay stubs, tax returns, bank statements or W-2s. However, stated income and no-ratio loans still require you list your assets to reassure the mortgage lender that you can still pay back the loan.
There are also loans known as “no income, no asset,” or NINA for short. NINA home mortgages only require you to disclose your name, Social Security number, the address of the property you’re buying and how much you intend to use as a down payment. This can be very useful for people who want maximum protection of their privacy.
More Mortgage Program Choices
As a result of your good credit score, 1st Freedom Mortgage LLC shop
preferred mortgage programs and can get a mortgage for you with better
terms and rates. You have more purchasing power available to
you because of the lower interest rate.
The Five Factors of Credit Scoring
Payment History has a 35% impact. Paying debt on time and in full has a positive impact, and late payments, judgments and charge-offs have a negative impact.
Outstanding Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account; the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest incurred by moving a balance from a 0% card to a 23% card will be minimal relative to what the increased mortgage debt might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry.
Length of Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A seasoned borrower is stronger. Opening new credit cards will decrease the average length, and therefore hurt this portion of the score.
Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only. Careful, too, when getting credit at a store that is not a department store: the credit agencies frown on cards for more specialized stores where you’re likely to only make one purchase, as they seem to show desperation.
Inquiries have a 10% impact. Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as only 1 inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquiries beyond that in a six -month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.
Increasing Your Credit Score
A good credit score can mean the difference between a low mortgage rate with conventional financing and a restrictive, higher-rate loan. There are some simple but very important steps you can take to clean up your credit and increase your credit score.
Look for any past due balances on the credit report and bring them current.Reduce all outstanding debt to as close to a zero balance as possible. If unable to pay all debt down, evenly distribute any remaining debt among open credit cards, or consider opening a new line and transferring some of the balances. Try to keep balances below 50% of the available credit; 30% would be even better. Do not close existing accounts.
If married, keep separate credit cards. This provides flexibility in transferring some or all of the balances to one spouse to increase the credit score of the other. This provides the possibility of one spouse becoming the sole borrower and does not change the ownership of the home.Request an increase in available lines on cards to reduce debt ratio, but only if your credit card company can do that without a hard credit inquiry.
Pay off past dues and charge-offs within the last two years. Beyond two years, it will have no impact on your credit score if wiped out. In fact, the act of paying it off can actually take your score down temporarily.
Request that creditors and credit bureaus delete any outstanding debt that incorrectly charged to you or has yet to be cleared. They have an obligation to react within 30 days. If you choose to pay off an outstanding debt (less than two years old ) mark the back of the check “accepting this check is evidence that the transaction is complete and this charge will be deleted from credit.” You may be able to use the cancelled check if the outstanding debt is not remove
