Want to Become a Home Owner? (part 1)
What does it take to be a home owner? Preparation is the key. In today's world credit is paramount. When a lender is reviewing your application, the first step required is meeting minimum credit scores. The benchmark for most government backed loan programs is a score of 620. Why is this so important? Your history is used to determine how likely you are to manage your finances in the future. All loans are priced based on credit score. The higher your credit score the lower your interest rate will be. It is a fact of life that has been around for the last 30 years or so. When a borrower's credit report reflects utility accounts in collection, delinquent cell phone accounts and the like, imagine what is going through the underwriter's mind. This borrower is not a good credit risk. How can this applicant take on the additional financial responsibility of home ownership?
It is a good idea to have your credit reviewed prior to prequalification. Doing so will make you aware of any accounts that need to be addressed. It's part of a healthy financial "check up". Mortgage prequalification entails a tri-merge report (Equifax, Transunion and Experian). Do you know that your credit scores will improve simply by keeping your credit cards below 30% of the line amount? Using your card monthly and keeping a small balance is like getting a Vitamin B shot….which will boost your scores. The rules of the credit game have changed. Years ago, if you had credit card accounts with no balance your scores would improve. This strategy is no longer valid. You need to use your cards sparingly, keep a small balance and make your payment on time. Makes sense.
During one's lifetime, you may fall upon hard times. The need for bankruptcy relief is more common with the country's workforce experiencing unemployment or underemployment. After filing a bankruptcy, the waiting period for loan approval varies by program from 1 - 5 years and highly depends on how credit was reestablished after the bankruptcy. Careful consideration is given based on the cause, effect and resolution. Sound familiar? Remember your high school English Composition class? You may be required to provide a written explanation for the bankruptcy.
Did you know.....the credit score model used for mortgages is different than a consumer credit report? How can this be? I often explain to borrowers this way - When you were in high school advanced placement classes were offered. A consumer credit report can be compared to standard high school classes. A residential mortgage credit report to AP classes. The grade is weighted differently and your score will not be the same. In this day and age of identity theft and the like, a residential mortgage credit report will also indicate prior addresses, name variations, identity scan, verify social security number issuance for consumer identification, and check OFAC watch lists.
I offer this information because I know many struggle to achieve the American Dream. The most important things in life are usually the hardest to attain. I remember my parents telling me "work hard, pay your bills on time, save for a rainy day, don't spend more than you earn". We all can benefit by listening to our parents.
Credit is just one part of the home buying process. It is the sorting mechanism for loan program, down payment requirements, interest rate and maximum ratios allowed. If you would like more information please feel free to contact Mary Jo Ellen Traversone, Branch Manager, Homestead Funding Corp 76 West Ave 2C Lockport, NY 14094 firstname.lastname@example.org (716) 696-0036 NMLS 589509; Lic#MLO-24141VA
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