|
Credit Reports Your credit report is an important factor in the mortgage lending decision. We have provided information about credit reports and credit guide scoring used in conventional financing. If your credit is not perfect, there is a sub-prime lending market for individuals with imperfect credit. Credit Reporting
Companies
Equifax Experian Trans-Union Credit
Guide Scoring
In
a nutshell, credit scoring is a statistical method of assessing the credit
risk of a loan applicant. The score is a number that rates the likelihood
an individual will pay back a loan. The
score looks at the following items:
Credit
Guide Scoring
Credit
scoring will place borrowers in one of three categories. First,
a borrower with a score above 650 to 675 may be considered an A+ loan. The
loan will involve basic underwriting, probably through an
"computerized automated underwriting" system and be completed
within minutes. Borrowers falling in this category may have a good chance
to obtain a lower rate of interest and close their loan within a couple of
days. Second,
a score below 650 but above 620 may indicate lenders will take a closer
look at the file in determining potential risks. Borrowers falling in this
category may find the process and underwriting time no different than the
past. Supplemental credit documentation and letters of explanation may be
required by lenders before an underwriting decision is made. Loans within
this FICO scoring range may allow borrowers to obtain "A"
pricing, but loan closing may still take several days or weeks as it does
now. Third,
borrowers with a score below 620 may find themselves locked out of the
best loan rates and terms offered by lenders. Mortgage professionals may
divert these borrowers to alternate funding sources other than FNMA and
FHLMC. Borrowers may find the loan terms and conditions less attractive
than the "A" loans, and it may take some time before a suitable
funding source is located. As more lenders utilize credit scoring, the loan approval and closing will be compressed for most consumers. In the future, a high FICO score may be your ticket to a speedy and competitively priced mortgage loan. Credit
History Affects Mortgage Loans
Many
home buyers are very worried about this issue. We've even heard one story
that an applicant was denied a mortgage because he had returned a rented
videotape late! Of
course, that could never happen. And most people don't need to worry about
the effects of their credit history. However, you can be better prepared
if you get a copy of your credit report to review before you apply for
your mortgage. That way, if there are any errors you can take steps to
correct them before you make your application. If
you have had credit problems, be prepared to discuss them honestly with
your mortgage lender -- and come to your application meeting with a
written explanation. Responsible mortgage lenders know there can be
legitimate reasons for credit problems, such as unemployment, illness or
other financial difficulties. If you had a problem that's been corrected,
and your payments have been on time for a year or more, your credit will
probably be considered satisfactory. How
To Correct Errors
You
have the right, under the Fair Credit Reporting Act, to dispute the
completeness and accuracy of information in your credit file. When a
credit reporting agency receives a dispute, it must reinvestigate and
record the current status of the disputed items within a "reasonable
period of time," unless it believes the dispute is "frivolous or
irrelevant." If the credit reporting agency cannot verify a disputed
item, it must delete it. If your report contains erroneous information,
the credit reporting agency must correct it. If an item is incomplete, the
credit reporting agency must complete it. For
example, if your file showed that you were late in making payments on
accounts, but failed to show that you were no longer delinquent, the
credit reporting agency must show that your payments are now current. Or
if your file showed an account that belongs only to another person, the
credit reporting agency would have to delete it. Also, at your request,
the credit reporting agency must send a notice of correction to any report
recipient who has checked your file in the past six months |