Common Mortgage Questions

Do you have Mortgage Questions? What is a Loan-To-Value Ratio?  Can I get a loan if I have credit issues? How can I repair my credit? How much of a downpayment do I need? Check out Our FAQs and Mortgage info below.

CREDIT ISSUES – CAN I QUALIFY?

FAQs on Qualifying for a Mortgage…

Contact Us With Your Questions

Many people do not realize that they can optimize their credit scores…

Optimize Your Credit Scores

Credit scores play a large role in determining the interest rate home buyers are offered on mortgages or in some cases if they will even qualify for a loan. Many people do not realize that they can optimize their credit scores and build up their financial situation prior to trying to get a loan or refinance their current home mortgage.

A FICO Score is used to estimate credit worthiness.

Mortgage Rates & FICO Scores

FICO stands for Fair, Isaac & Company and is the name of the most well known credit scoring system. The higher your score, the more credit worthy you are assumed to be by FICO.

Your complete credit profile is reviewed and assigned a score, which is used to estimate credit worthiness.

Lenders check your FICO score when you apply for any type of major credit. Knowing your score is an important step in the mortgage process.

Question: How is my score determined?

Your FICO score is made up of 5 main components:

  1. Credit inquiries make up about 10% of your score. Multiple inquiries can be seen as a negative if several credit cards are applied for at one time, especially if other accounts are close to their credit limit. Several inquiries within a 14 day period for a specific loan are only counted as one inquiry.
  2. The types of credit you have is about 10% of the score. The stricter the credit requirements of your lending institution, the better it is for you.
  3. The length of your credit history is about 15% of your score. The longer your credit has been established, the better it is for you. Opening new accounts and closing proven accounts can bring down your score.
  4. Your everyday credit use constitutes about 30% of your score. Lower balances on credit cards is better than higher balances closer to your credit limit.
  5. Your past payment history is around 35% of the score. The fewer late payments you have, the better your score will be. Recent late payments will have more negative impact than credit problems in the past.

High FICO Helps

How is FICO Determined?

FICO Facts

What is my FICO Score and why should I care?

FICO stands for Fair, Isaac & Company and is the name of the most well known credit scoring system. The higher your score, the more credit worthy you are assumed to be by FICO.

Your complete credit profile is reviewed and assigned a score, which is used to estimate credit worthiness.

Lenders check your FICO score when you apply for any type of major credit. Knowing your score is an important step in the mortgage process. It is important to know how scoring works and how to improve your score from FICO.

It is best to review your credit before you look for a home. You can then make corrections and make sure your loan is based on the most accurate information.

Your score can only be changed by the way that payments are reported directly to the 3 major credit bureaus. Confirmation from the creditor in writing is required.

If you find an error on one or more of your credit reports, contact the consumer reporting agency or the organization that provided the information to the agency. Both parties are responsible for correcting inaccurate or incomplete information in your report as required by the Fair Credit Reporting Act.

You may get a free copy of your credit report from each of the three major consumer reporting agencies annually. To request a copy of your credit report, please visit: www.annualcreditreport.com. Please note your free credit report will not include your FICO® Score. Because your FICO® Score is based on the information in your credit report, it is important to make sure that the credit report information is accurate.

In evaluating an application for a mortgage loan, an applicant’s credit history will be considered as one element in determining the applicant’s qualification for the requested loan. Negative credit histories or a lack of previous credit experience can adversely affect an applicant’s ability to obtain a requested loan. More recent credit information will be weighed more heavily than older information. Also, some types of credit histories may be given greater weight than others. Generally, the applicant’s previous payment history on a mortgage loan is given the greatest weight, followed by major installment accounts (such as auto loans), followed then by major credit card accounts (such as MasterCard and VISA accounts), and finally followed by minor revolving charge accounts such as departments stores and finance companies.

In evaluating a loan application, we will look closely at information occurring in the past two years. Generally, a few late payments occurring on installment loans or credit-card accounts more than two years ago will not affect an applicant’s ability to obtain maximum financing (with minimum equity or downpayment) as long as the late payments were isolated and an adequate statement has been provided explaining why the credit problems occurred.

An applicant may be able to qualify for maximum financing with a previous bankruptcy provided that the discharge date is more than two years ago, the applicant has re-established and maintained a positive credit history on at least three accounts since the date of the bankruptcy discharge, and the applicant provides an acceptable explanation for the reason the bankruptcy was filed. Chapter 13 bankruptcy plans (which provide for a restructuring of debt and repayment of all or a portion of the debt over a 3 to 5 year period) must have been fully completed for a two year period to obtain maximum financing at the best available interest rates. However, we offer special loan programs at higher interest rates which allow more recent bankruptcies. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the bankruptcy.

As previously stated, mortgage payment histories are given greater weight than other types of credit information. Thus, late payments occurring on a mortgage within the past two years will typically preclude an applicant from obtaining maximum financing at the best interest rates. However, we offer special loan programs at higher interest rates which allow recent late payments on mortgages. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the late payments occurred. We even have loan programs for applicants which are currently in default on a mortgage loan or which have experienced foreclosures; however, these programs typically require higher equity positions of between 20% and 35% and have interest rates which are much higher than those offered on other loan programs.

The amount of the downpayment required for an applicant with recent derogatory credit is determined on a case-by-case basis. Generally, the more negative and more recent the derogatory information, the higher the downpayment or equity position that will be required. For example, we offer a program which allows a 5% downpayment which permits late payments on a mortgage occurring more than 12 months prior to the application date, and up to three 30-day late payments on other types of accounts during the preceding 24 months. With 10% down, several late payments on a mortgage occurring within the preceding 12 months and a few 30-day and 60-day late payments on other types of accounts will be permitted on these special programs with higher interest rates. Most of these programs also allow higher debt ratios than those programs at more favorable interest rates.

Credit Issues

FAQ on Qualifying Applicants with Credit Issues

Checklist

Be prepared for your loan application

Employment

  • Addresses for two full years
  • Gross monthly income
  • W-2s, if available
  • Proof of pensions, retirement, disability or Social Security, proof of income from rentals, investments, etc. Proof of child support or alimony paid/received year to date, pay stubs.

If self-employed

  • Two years 1040 Tax Returns and all Schedules
  • Current year profit and loss statement

Creditors

  • Each creditor’s name, address and type of account, account numbers, monthly payments and approximate balances, and amount of child care expenses.

Banking

  • Names and addresses of saving institutions, account numbers for all accounts, type of accounts and present balances.

Miscellaneous

  • List of assets in stocks, bonds, land
  • Life insurance cash value (documented if for down payment). If applicant is selling a home, a copy of the sales contracts and Social Security numbers for all parties should be provided.
  • Veterans – Certificate of Eligibility and DD-214
  • Cash or check to pay for application fee

Your Realtor should provide

  • Copy of sales contract
  • Copy of MLS listing sheet on property
  • Instructions on how appraiser is to gain entrance