I encourage anyone who is considering buying a home to start the preapproval process as soon as possible. Regardless of if you’re not planning on buying for a year or you think your credit, income and assets are prefect – you never know what underwriters may find lurking in your application.
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!
How co-signing on a debt impacts qualifying for a mortgage
June 13, 2012 by Leave a Comment
As a Licensed Mortgage Originator, I often see credit reports where the borrower has cosigned on a debt for a family member or friend. You may be a parent co-signing on your child’s student loans to help them get a better rate, helping your brother buy a car by co-signing the lease or auto loan or perhaps co-signed on a family members mortgage so they can buy a home. They’re going to be responsible for the debt and making the payments and you’re helping them out. Often times, folks don’t realize how this good deed may impact them qualifying for a mortgage down the road. [Read more…]
Documenting Alternative Credit with FHA Loans
July 15, 2008 by 15 Comments
EDITORS NOTE: This post was originally published in 2008. Underwriting guidelines ALWAYS change. Please contact me if you have any questions.
FHA insured loans, which are quickly becoming the mortgage of choice unless you have 20% down payment and 720 credit scores, allows people to obtain mortgage financing if they are shy on an established credit history reported to the credit bureaus. Typically, a borrower needs to the following shown on their credit report for it to be considered “established”:
- At least three trade lines (credit accounts) in good standing.
- Two of the three trade lines must be at least 12 months old.
- One trade line must be at least 24 months old.
- Three credit scores per borrower.
Sometimes, if someone does not have established credit that is reported to the credit bureaus, they need to use “alternative credit” or “non traditional” credit, which may be acceptable with FHA financing. Proving you have credit that is not reported to the bureaus requires that you obtain documentation from three different sources that you have made on time payments to during the last 12 months.
Possible types of non-traditional credit (preferred–at least one of these types of sources are required):
- rent payments
- utilities (telephone, electricity, gas, water, garbage, cable, etc.)–not included in housing payment.
Other acceptable sources of non-traditional credit are (two out of three sources may come here):
- insurance (medical, auto, life, renter’s, etc).
- payment to child care providers
- internet/cell phone service
- personal loan with terms in writing supported with canceled checks
- department, furniture, rent-to-own stores, etc.
- a documented 12 month history of saving by regular deposits (at least quarterly) that are not payroll (automatic) deducted.
Note: Debts that are paid automatically from your payroll are not allowed to be used in documenting non-traditional credit. Lenders want to make sure that you are able to make timely payments “voluntary”.
The “form of proof” can be:
- canceled checks for the last 12 months, or
- written letter from creditor which is written on their letterhead, includes your name and account number stating the you have made on-time payments during the last twelve months. The letter should include what the payment amount is and the total amount due.
In order to qualify for a non-traditional credit approval with FHA, over the last 12 months, there must be:
- No late payments for housing.
- No collections or court records reporting (with the exception of medical).
- No more than one 30 day delinquency on payments due to other creditors.
Qualifying ratios are restricted to 31% for the payment to income ratio and 43% for the total debt to income ratio. Two months reserves (two months mortgage payments in savings after closing) is also required. When non-traditional credit is used, the mortgage is a “manual underwrite” meaning that you need to allow for more time during the underwriting process as a real live human is underwriting your transaction.
Last but not least, do make sure that you are working with a Mortgage Professional who is qualified to provide FHA mortgage loans. Not all mortgage companies are approved and, with many products no longer available, they may try to illegally provide an FHA mortgage with hopes of finding another lender to broker it to. Ask your Mortgage Professional if they have provided FHA loans before, how long and how long their company has been approved for FHA loans. By the way, I cut my mortgage teeth on FHA 8 years ago and our company has been providing FHA loans since our inception. (We are a Direct Endorsed HUD lender). You can always check out HUD’s site to confirm whether or not your lender is approved.
Questions or concerns about FHA (or any) mortgages for Washington State properties? Contact me.
Improving Your Credit Score
March 27, 2008 by 2 Comments
With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time. If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process. Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection). What steps you should take depends on how soon you plan on buying a home or refinancing.
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