Recently my husband and I considered buying an investment home in West Seattle. We began the preapproval process so that we could present an offer with a bona fide preapproval letter. We gathered our W2s, tax returns, bank statements and paystubs…and had our credit report pulled.
I know my credit score
March 5, 2015 by Leave a Comment
What you don’t know about your credit report may haunt you
October 30, 2012 by Leave a Comment
Does your credit report have skeletons hiding in the closet? Many are startled at what is lurking on their credit report when they’re getting ready to buy or refinance their home.
If you’re a long-time subscriber to Mortgage Porter, you’ve probably read some of my tips on how to improve your credit score. Here’s a quick overview of five frightening credit report surprises.
Your on-line credit score may not be what it appears. Your credit report and scores are available on line by the “big three” credit bureaus. However, don’t be fooled by your on-line credit score which probably is a different number than what a mortgage company (or other lender) will pull. Why? Basically, there are different scoring modules created for the end user (for example a mortgage company or if you’re buying a car).
Credit inquiries lingering behind. Your credit report will reveal inquiries that were made over the past 120 days. Each inquiry will need to be addressed with a written letter explaining each inquiry and whether or not new credit was obtained. If new credit has been obtained and needs to be added to the loan application with the debt being factored into the debt to income ratios.
Co-signed college student loans. If you co-sign for your childs student loan debts (or any debts) chances are you may get to qualify factoring that debt into your ratios. This can sometimes be resolved if you can document your child (or whoever you co-signed the debt for) has made payments on their own for the last 12 months.
Charge-offs. Consumers often assume that because a debt has been “charged off” that they’re off the hook for the remaining balance, which typically is not true. Lenders will often treat the balance of the charge off that is on the credit report as a “collection” which will probably need to be paid off or resolved prior to obtaining a new mortgage.
Disputed accounts. You disagree with what is being reported against you on your credit report and do what most responsible people would do: file a dispute. Only to find out when you’re getting a mortgage, that the lender will not close on your transaction unless the reported dispute is removed. Torture!
What may be buried in your credit report is just one more reason why you should start your loan approval process sooner than later.
If you’re considering buying or refinancing a home anywhere in Concrete, Fall City, Forks, Auburn (originally incorporated as the town of Slaughter) or anywhere in Washington state, I’m happy to help you!
Charge Offs: All is Not Forgiven
August 1, 2012 by Leave a Comment
Part of what I do as a mortgage originator is review credit reports. I’m often surprised how many consumers think that a debt that has been charged off means that it has been removed from their credit history or “forgiven”. Basically, a charge off is when the creditor is writing the debt off their books for tax purposes, it is not terminating the debt owed by the borrower. Often times, the charge off may turn into a collection or be sold or assigned to a collection agency and therefore, mortgage lenders will view a charge off on a credit report as a collection.
I while ago, “Betty Bellevue” called me to see if she could help her mom obtain a mortgage. A couple years prior, her mom had a car that she “gave back” to the bank. She thought she would only have a “repo” reflected on her credit report and that enough time had passed to where she might qualify for a mortgage. What she didn’t realize is that even though the bank had the car back, she had a “charge off” for the balance of the car loan on her credit and that for purposes of a mortgage, we would treat it as a collection (it would need to be paid off and removed from the credit report).
Distressed home owners with second mortgages may be surprised to find charge offs on their credit report following a short sale. Borrowers are often caught completely off guard by this remaining damaging debt being reflected on their credit report. Depending on how the lender reports the short sale to the credit bureaus, it may be just as detrimental as a foreclosure. If you are considering a short sale or foreclosure, I strongly recommend you find an attorney who specializes in dealing with this type of situation. Linda Ferrarri has great information on her credit blog about foreclosures and short sales which I highly recommend if you find yourself facing this situation.
A charge off also dramatically impacts credit scores. Once a charge off, or collection is paid, credit scores will initially drop as the credit scoring modules view it as a “new activity” on the borrowers credit. Eventually scores should recover and improve. If you are considering a mortgage and have charge offs or collections, it’s important to discuss how and when you’re going to pay them off (some can be paid at closing which will prevent your scores from tanking during the mortgage process).
You can obtain a free copy of your credit report at www.annualcreditreport.com.
Washington State’s DFI (Department of Financial Institutions) guide for home owners who are considering a short sale and Foreclosure Help.
Is My Credit Checked Before Closing
June 9, 2012 by Leave a Comment
A “soft” credit check is just prior to closing on your mortgage. This is to ensure that no new debt was obtained during the mortgage process and that the information on your final application that you sign at closing still represents your financial scenario.
A soft credit check does not impact your credit scores. It will disclose any new debts and credit inquiries. If there are changes to your credit revealed from the soft credit check, be prepared to explain and document whether or not new credit was obtained. Even if the credit card you decided to open during the transaction has not been used, you will still need to provide documentation regarding this new potential debt.
A “hard” credit check may take place if your existing credit report is set to expire before closing. Different than a soft credit check, the mortgage company will order a new credit report and the terms of your mortgage will be impacted by what the new report discloses, including any changes to your credit scores. This includes your current pricing of the loan and qualifying.
It’s really best to not obtain any new credit during the mortgage process and avoid applying or inquiring for any credit. Even when the creditor states “six months same as cash” or “this won’t impact your credit” – don’t buy it! If you do feel you need to make a purchase just prior or during the mortgage process, please discuss it with your mortgage professional first. A new car or big screen tv for your home may delay the purchase of your new home.
How Much Money are You Spending on Credit Cards?
December 22, 2011 by Leave a Comment
Tis the season to buy gifts and many of us rely on our credit cards to do so. Not just at Christmas time, but throughout the entire year. It's a convenience many are dependent on. With the fees and interest banks charge for the convenience of credit cards, it's amazing what you really end up paying over the year(s) if you carry a balance.
I encourage you to read your credit card statements this month as your statement will disclose just how much you paid in interest and fees this year. You may be rethinking the value of your mileage plan (like I am) or what ever "benefit", like airline miles, the bank is extending in trade for this indebtedness. It may be real tempting to close the account after seeing how much the cost for the credit is. Closing your established credit accounts may actually hurt your scores!
If you're considering a mortgage over the next few years, you may want to consider working on paying off the account and only using it once a month for small purchases (like gas or groceries) and paying it off monthly in order to optimize your credit score. Established credit helps your credit scores and your closed account, depending on what else you have impacting your credit, may lower your score. Likewise, new credit may bring down your credit scores – even if it's for doing something that is financially wise, like transferring credit card debt to a lower interest credit card. If you don't use credit cards, you may discover that you need to have established credit (typically three to four different active credit lines that are at least 1 – 2 years old) in order to qualify for a mortgage. Credit is a real catch-22 when it comes to qualifying for a mortgage and your credit scores.
If you own a home and have not yet refinanced, it could be worth your consideration. The additional savings from with your monthly mortgage payment could go towards reducing debt, like credit cards.
I often work with my clients who are getting ready to buy a home to develop a strategy on paying off their debts, increasing credit scores and/or building savings, depending on what their financial goals are. If you are considering a mortgage to buy or refinance a home, do contact your local mortgage professional before taking action. I've often met with people who have done what would seem like "the right things" to improve their financial scenario, such tapping savings to pay off and closing all debts, only to learn they've wound up dropping their scores and reducing their savings.
I'm licensed to originate mortgages on homes located in Washington state and happy to help you with your home finance needs.
The Risk of Extended Closings
November 22, 2011 by Leave a Comment
With more short sales taking place, many home buyers are having to wait months before their closing date is here. The same may be true for those who are buying homes that are being constructed. With a delayed closing, there are some additional risk involved that buyers should be aware of so they can take action, when possible, to protect themselves. Some risks, borrowers have more control over than others. [Read more…]
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