Your credit score is the most important factor when applying for a
mortgage. Your credit score will tell a lender what the mathematical probability
is that you could default on your mortgage. Unless we have another housing bubble,
than all the endless hours that MBA’s spend designing mathematical models to
predict how solid of a buyer you are, go out the window. Billions of tax payer dollars
proved that in the last few years. Your score will tell a lender how responsible
you have been in managing your money in the past. Hoping that this does not
change and making lending you a sound investment for them and the investors that
have gave them money to lend. I viewed thousands of person credit reports in my
10 year as a mortgage broker. For the most part I can read a credit report and evaluate
/ per qualify an applicant within a few minutes. I have seen credit reports
with one or two open trade line and 700+ credit score and others with 15 open
account and a 600 score.
The most important contributing factor to a good credit score is
how long you have paid you accounts on time. The second most important factor
is how much of you available credit line is being used. For example if you have
$10,000 worth of available credit, and charged $9500 your score will not be
very good. To keep a good score you should not utilize more than 28% if your available
credit. I you have a zero balance on your credit card for more than six months
that that credit line will be counted towards your score. Your score is simply
there to help lenders evaluate the risk to lend you money. If you pay all your
bills in cash and always on time but never use your credit cards this could negatively
influence you score.
To obtain a good score, make sure your bills are paid on time,
your credit report will not show a late payment unless it’s been paid more than
30 day late. For example if you Car payment is due on the 5th of the
month and you always pay on the 25th, you credit report will show as
having been paid on time. This hold true for all credit payment that are
reported to the 3 major credit reporting agencies. Next try to obtain a balance
of different types of credit. Mortgage, Car, Store Credit Card and one or two Visa
and Master cards. Too many cards can bring your score down, so will to many
credit inquires. Each time you apply for credit your score will go down, the
lower your score the more it goes down. The credit agency will allow you a week
or two window if you are shopping for a car or home mortgage. You can have one
or twenty car finance companies check your credit in a couple day window and
that will only count against your score as if you had one check. The same holds
true for Mortgages.
The next factor for obtaining a good Mortgage is your income and
debt to income (aka DTI) ratio. Banks will look at all your payments due on
your credit report (minimum payments) and divide that number by you Gross
(Pre-tax) income. I know you can only spend your after tax money. But Banks use
gross to compensate for other factors. For a Mortgage evaluation lender will first
look at your ratio before your house payments to see how much of a home loan
you can afford.
If you or someone you know is in the market to buy or sell residential
Real Estate in Palm Beach County please feel free to reach out to me or visit
my site at http://FridayRe.com
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