Someone once told me that if you want to be successful you should to separate yourself from the competition. As a good student, I went ahead and did this and now I take on some of the most challenging financial situations and turn them into happy homeowners.
Why are these cases challenging? Mostly it is because of credit. Credit is the single most important aspect of a loan file to an underwriter. With excellent credit, you can buy a home with a signature - no need to verify money to put down or employment. In short, credit is KING.
With poor credit however, every detail of your loan is put under a microscope. Even former bad debts that you have paid are scrutinized – you will usually have to write a letter explaining why a particular debt was defaulted, or falsely reported as defaulted, and verify that it was paid. The credit bureaus offer little help in that their records are very often outdated and many times when an outstanding debt is finally paid, the creditor isn’t interested in helping you update your credit report.
It is important that you seek advice from a mortgage consultant long before you want to write a contract. Time and time again, I get a call from someone who is in the middle of writing a contract only to find out that they either do not qualify, or that their situation will require more time to process than their contract allows for, or they will have to pay much higher than normal rates because their credit file indicates to the bank that they are a higher risk. In many cases, I can convince the underwriter that the loan is worth doing, even if there are credit challenges, but that will require a fair amount of documentation as to what happened, and an assurance that it will not happen again. It also extends the time required to process the loan.
So how do you make sure your credit is good enough to buy a home? Simply ask your loan officer for your credit scores. Most lenders still use the “middle of 3” rule where we pull credit from all 3 credit bureaus (Trans Union, Experian, and Equifax) and then drop the highest and lowest score, and use the middle score. For example if your scores are 664, 702, and 712, we would rate your file as a 702, which is pretty good (ideally you want to have a middle score of 680 or higher). If your middle score is above 700, your lender will love you and it will make processing your loan much simpler as it will be scrutinized less.
So what do you do if your lender tells you that you have derogatory credit? If you are working with a seasoned loan officer, they can usually help analyze your credit report and give you some suggestions. Most of the time it involves informing the credit bureaus (all 3 of them) by mail of the discrepancy along with sending them some supporting documentation. The process takes about 60 days in total to have an item updated. You can also contact the credit bureaus via the Internet at their respective web sites for an expedited reply, however there is usually a charge for this.
If you are taking on the credit repair challenge, here are a few resources to help you:
1. The FTC has a publication that gives you a step-by-step plan of action including sample letters to write to the credit bureaus. Do a Google search for "FTC guide to credit repair" and you should find the most current copy.
2. Here is a link to Lexington Law, the Law Firm that I have teamed up with to help my clients that desire professional help with their credit repair:
http://www.consumersadvantagemortgage.com/Lexington
If you are looking for a mortgage, regardless of your credit situation, I would be happy to speak with you.
Until next time...
Anthony
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