Credit Score and Mortgage Loan Notes

Value of being pre-approved:  If buyers get pre-approved early, they will know exactly what they can afford and what price range to consider when shopping for a home.  The reality is that they have to go through the whole process anyway and might as well do it when they aren’t busy with everything of buying a home.  Plus, if any problems are uncovered early, they have time to fix them. 

Don’t make any big life changes or purchases:  When buyers are in the midst of purchasing a property, they should not do anything that will alter their credit profile in any way.  Anything that changes between applying for a loan and closing (new job, buying a car or furniture) might cause their credit score to do down and will disrupt the purchase process. 

Credit scores:  Credit scores take into account a consumer’s past and present.  Unless there’s an error on his credit report, a buyer can’t change his past.  But he can take action by paying overdue accounts and leaving open any current accounts that are paid off. 

Credit scores:   There is more than one credit-scoring model.  FICO scores are the most popular among mortgage lenders.  Many of the scores released to consumers (credit cards, banks), use the VantageScore model.  This score is often higher than the FICO score.  Credit scores are based on late payments and credit inquiries by banks and credit card companies.

FHA loans:  Buyers who qualify can get a FHA loan with 3.5% down.  FHA will let the seller pay closing costs as well.  While a low down payment can help buyers, those who can afford more upfront should consider doing so.  If the loan is for 90% or more of the sales price, the borrower pays mortgage insurance for the life of the loan.  If the borrower puts down more than 10%, even if it’s only 10.01%, the mortgage insurance will go away after 11 years. 

Two types of loans that are assumable:   FHA and VA loans

Self-employed borrowers:  A common challenge for them is a cash-flow problem because their net income might not accurately reflect what they can afford.  The debt-to-income ratios may negatively affect the amount they can borrow.