My tip of the day comes from my real estate guide – “The Truth About Credit“. Applying for a mortgage can be a confusing event. To many real estate buyers, it’s something akin to a spin of the roulette wheel – you never know what’s going to turn up. However, you don’t have to go into your meeting with the bank unprepared. My real estate guide will help you prepare for that meeting by giving you some valuable tips about the process. Here’s an example:
1. ABC’s of Mortgage Credit
Mortgage lending ABC’s gets its name from the grading of credit based on such things such as payment history, account balances, bankruptcies, equity position, and credit scores.
When trying to figure a credit grade, keep in mind the following principles: When you have questionable credit, all of the other aspects of the loan need to be in perfect order – equity, stability, income, documentation, assets, etc., play a larger role in the approval decision. When determining your grade, various combinations of factors are considered. In the worst case, some of these factors will push your grade to a lower credit grade – mortgage late payments and bankruptcies are the biggest detriments. If they appear on your credit report, your credit grade will likely suffer. Credit patterns are also very important to getting a high credit grade. A large number of recent credit inquiries and more than a few outstanding loans may signal a problem. A “willingness to pay” is important; late payments in the same time period are better than random late payments as they signal an effort to pay even after falling behind.
Find a co-signer. Getting a person with good credit to co-sign your loan gives extra security to a lender, so you are more likely to get approved for a loan you want. Research and consider all the different loan programs you might have access to. For example, you might want to take a look at secured loans. Secured borrowing options require some valuable asset that serves as collateral in case you default on your loan. Although there is a risk of losing an asset, having collateral will get you better deals and improve your chances of approval.