How to Qualify For A Home Mortgage Loan
By: Jeff Slokum
Are you considering applying for a mortgage loan to purchase your first home? If so, you should read the following tips below that will make the process easier!
If You Have a Good Credit History It Is Easier To Qualify For a Mortgage
By far the easiest way to qualify for a home mortgage loan is by establishing a good credit history. To establish a good credit history you need to be able to demonstrate responsible repayment of smaller loans, such as credit cards and car loans. The building of your credit history begins the day that you put the very first debt into your own name. For many Americans, this is at the age of eighteen.
Have a good solid credit history, shows the home mortgage lender that you take financial responsibility seriously. This makes you, what the lender terms, a low risk borrower. That is to say that you as a borrowers are a relatively low risk in comparison to other borrowers.
In return for your good credit history, the lender will approve your home mortgage loan application. In addition, he will offer you a lower interest rate on the loan than would be offered to other borrowers who are classified as high risk.
However, if your credit history is not as strong as you would like, that doesn’t mean that you will have to give up on getting a home mortgage loan. There are other things that you can do to increase your chances for mortgage approval.
Save a Sizeable Down Payment
Having a substantial down payment on the home that you wish to purchase and applying for a smaller home mortgage loan is another way to increase your chances of getting mortgage approval. Again, this goes back to the risk involved to the lender for financing your loan.
Many mortgage lenders will require that you have a 20% down payment on the home, and then they will grant mortgage loan approval for the remaining 80% of the purchase cost. This helps to offset the lender risk. In the event that you are unable to keep up with monthly mortgage payments and you default on the loan, the lender will have a better chance of recovering his money through foreclosing on and selling the home if the loan is a smaller percentage of the market value of the home.
Therefore, if you can save 30% or more towards a down payment on your home, you will be lowering the risk to the lender and increasing your chances of getting mortgage approval.
You May Have To Accept a Higher Interest Rate on Your Mortgage Loan
If you wish to secure a mortgage despite your bad credit history, and you do not have a sizeable down payment saved up, you may have to agree to a mortgage at a higher interest rate than that which is being offered to low risk borrowers. This is because the lender will want to be compensated for his increased risk level.
This should not necessarily prevent you from taking the loan, though. If you secure the mortgage and are diligent about making timely payments, after paying on it for awhile you will improve your credit history. Then you can refinance the mortgage at a later date with a better rate offer.
Fico Scoring Basics
by: Gary Gresham
FICO scoring originated from the Fair Isaac Company. The Fair Isaac Company invented the current credit scoring system that turns all of your credit information into a personal credit score. Today lenders still use this credit scoring system to determine credit risk.
The term FICO scoring means, a credit score based on the Fair, Isaac Company or FICO model. It's important to know your current credit or FICO score and it's also important to have an understanding of how FICO score is determined.
FICO scoring is used by lenders to figure out what your interest rate will be on loans you apply for. If you're buying a house the types of mortgages available to you are based on your personal credit score.
That score is based on the FICO model and the interest you pay, as well as your monthly payment, is based on what your personal credit score number is.
The same is true when you get a car loan, as well as the premium on your car insurance or homeowners insurance. Your personal credit score can even affect your chances of getting new employment.
FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
Payment history (35%)
Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.
Outstanding Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
Length of your credit history (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent inquiries (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Types of credit in use (10%).
How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it's important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.
FICO scoring is based on all the categories of information, not just one or two. Lenders on the other hand will look at a lot of things when they make a credit decision. Your income, how long you have worked at your present job and the kind of credit you are requesting will always be a factor.
There are many things that will affect your financial future and FICO scoring plays a big role in how successful your future will be.
Copyright © 2005 Credit-Repair-Facts.com. All Rights Reserved.
How To Raise Fico Scores
by: Gary Gresham
If you know how to raise Fico scores the rewards are best measured by how much comes out of your wallet when it's time to buy a house, a car or any other big ticket item.
The benefits of knowing how to raise Fico scores are so you can qualify for more loans and get the best interest rates available. That could save you thousands of dollars because lenders measure risk factors by your personal credit score.
If you want the best loan, you want your Fico score needs to be the best it can possibly be. Here are a few tips that will help improve your creditworthiness and raise Fico scores for you.
Get A Copy Of Your Credit Report
The first step to raise Fico scores is to get a copy of your credit report. Your report should have TransUnion, Experian and Equifax credit scores. The reason is if there is something on your report that is incorrect, your score will raise once it is removed. Correcting credit report errors can take up to three months and sometimes longer. It's important to correct any errors before a lender sees your personal credit score so there won't be any question about you getting the best interest rates.( Get a free copy of your credit report at ) http://www.freecreditreport.com
Pay Your Bills On Time
This may seem like a no-brainer but your payment history makes up 35% of your total personal credit score. Your recent payment history carries much more weight than what happened five years ago. Paying your bills on time is the best way to start rebuilding your credit rating and raise Fico scores for you.
Pay Down Your Credit Card Debt
Credit card debt and revolving charges determines 30% of your Fico score. High balances, or more precisely, balances that are close to your credit limit can negatively affect your personal credit score.
Lenders like to see a lot of room between the amount of debt on your credit cards and your total credit limits. Most lenders think around 30% to 40% of maximum is ideal. So the more debt you pay off, the wider that gap and the more you can raise Fico score.
Don't Close Old Credit Card Accounts
Closing old or paid off credit accounts lowers the total credit available to you and makes any balances you have appear larger in credit score calculations. Closing your oldest accounts shortens the length of your credit history and to a lender it lowers your creditworthiness.
Also don't open new accounts when applying for a new loan. Opening a new credit line may lower your score since you don't have a proven payment record yet. A new account also lowers the average age of your accounts which is another factor in determining your personal credit score.
If you want to qualify for more loans and get the best interest rates knowing how to raise Fico scores will give you the most options and save you the most money.
Copyright © 2005 Credit-Repair-Facts.com. All Rights Reserved.