Buyer's Guide
Lansing Area Real Estate
REAL ESTATE
 
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Your Credit Rating
 Your credit rating will determine  what you can buy...and where you can live. 

When you apply for a mortgage loan, the lender will want to see a copy of your credit report. This report will list all your long-term debts, including mortgage payments, student loans, credit cards, and automobile loans...as well as your payment history.  If you don't have a copy of your credit report, most lenders will generally require you to pay for a copy when they process your loan application.
                                  
It would be a good idea to check your credit report to make sure it is correct, and try to have your credit in order before you go shopping for a mortgage.

Do you pay your bills on time?
Mortgage lenders want to know if you'll be a good credit risk. A history of making payments on time demonstrates that you are a good risk. 

For most people, problems with their credit report are likely related to late payments on a debt. If you were late one month in paying off your credit card, but otherwise have a good payment history, chances are most lenders won't be too concerned. 

If you have a history of late payments you'll need to document the reasons why. A slow payment history won't necessarily get you turned down for a loan, but you may have to pay a higher rate of interest or otherwise prove to the lender that you can repay your loan in a timely fashion.

Do you have a reasonable debt load?
Before offering you a loan, the mortgage lender will want to know how much of a debt load you already have. If a large portion of your monthly income is already committed to paying off other debt, such as credit cards, auto loans, or student loans, the lender will wonder if you may have trouble paying back a new mortgage loan. 


Lenders prefer that non-mortgage debt payments should not exceed 10-15 percent of your monthly take home pay.  If your debts are currently too high, consider ways to pay some of them down before you apply for your mortgage.


Avoid unnecessary credit inquiries
Whenever you authorize a creditor, employer, or other business to check your credit report, a notation is added to the report to indicate that someone has inquired about your credit.  

An inquiry usually stays on your credit report for two years.  A large number of inquiries occurring in a short period of time may be interpreted as a sign that you are overextending yourself by taking on more debt than you can actually pay back.  Checking your own credit is not considered to be an inquiry.

                                            Do not allow every mortgage lender 
                                                              to run a credit check.


Allowing every mortgage lender you talk with run a credit check will reduce your overall credit score each time an inquiry is made.  Instead, it is better to obtain a current copy of your credit report and carry it with you as you interview each lender.

Errors on your credit report
Credit reports can contain errors or inaccurate information.  If this is the case with your credit report, you'll need to contact the reporting agency or creditor to have the problem resolved.

Bankruptcies and foreclosures
There's no getting around it, a bankruptcy on your credit report is not a good thing.  But that doesn't mean you still can't obtain a loan.  Even though a bankruptcy may stay on your credit report for seven to ten years, lenders will often consider the circumstances surrounding a bankruptcy. A lender will be more inclined to approve your application if you have established good credit since the bankruptcy.

Your Credit Score (FICO)
A credit score is a statistical method of assessing the credit risk of a loan applicant. This score gives the lender a reference number that sums up your previous credit history and allows the lender to predict the likelihood that you will pay back the loan.  Your score is calculated from the information on your credit file at the time that the information is requested.  

Scores range from 400-800 and are rated by mortgage lenders in the following way:

720 and above 680-720 620-680 580-620 550-580 480-550
Excellent Good A A- B C

With a score of 680 and above you may be considered eligible for an A+ loan.  This loan usually has a lower interest rate and involves basic underwriting, probably through a "computerized automated underwriting" system, that can be completed within minutes.  

A score below 680, but above 620, may indicate that underwriters will take a closer look at your mortgage request to determine potential risks.  If you fall into this category, you may be required to provide supplemental credit documentation and letters of explanation before an underwriting decision is made.  You may still obtain a good interest rate and terms, but loan processing may take several weeks longer.

If your score falls below 620, the mortgage broker may have to shop for a lender who grant loans to borrowers with less than a spectacular credit history.  You may find that you won't be offered the best loan rates and the terms and conditions will be less attractive than the "A" loans.  It may also take more time to locate a suitable funding source.  

The three major credit bureaus:

........  
Equifax (CBI) PO Box 740249
Atlanta, GA 30374
(800) 685-1111
........  
Experian (TRW) (888) 397-3742
........  
Trans-Union 555 W. Adams
Chicago, IL 60661
(800) 916-8800
(312) 466-8385


What's in a credit report?
To understand the credit process you need to understand what information is contained in a credit report. A typical credit report includes the following types of information:

Identifying information:  Your name, Social Security number, current and previous addresses, date of birth, and your current and previous employers.  This information comes from any credit application you have completed and its accuracy depends on how clearly you fill out the forms each time you apply for credit.

Credit information:  Most information in your credit report comes from companies you have had credit with.  There will be information about each account you have opened, including the date opened, credit limit or loan amount, balance, monthly payment, and your payment pattern during the past several years. The report also 
states whether anyone else besides you, such as a spouse or cosigner, is responsible for paying the account.  In accordance with Federal Law, accurate negative information, such as late payment or an account turned over to a Collection Agency can remain on your credit report for seven years.

Public record information:  Bankruptcy records, state and county court records, tax liens and monetary judgments, overdue child support payments. This information comes from public records.  

Information not on your credit report:  Your income, race, religion, health, driving record, criminal record, or political preference.

Inquiries: 
Includes the names of those who have obtained a copy of your credit report for any reason. This information comes from the credit reporting agency, and it remains available for as long as two years, according to federal law.  

If you have been denied credit, insurance, a job, or a rental dwelling opportunity because of information contained in your credit report, you are entitled to a complimentary copy of your report within 60 days.  If you believe the information to be incorrect you may file a brief statement explaining why.  Inaccurate information on your credit may be removed but no one can have accurate, current or verifiable information removed from your record.
 

 
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