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You believe owning a home is in your future. It’s the American dream. But a lender has other ideas. That’s because lenders don’t think about the American dream; they think about the three numbers that indicate whether you’ll qualify for a loan. Those three numbers are your credit score.
Credit scores are largely determined by your credit history, and you can view that history on your credit report. The report offers a snapshot of your financial life – if you paid your bills on time, missed payments, and any other little blemish that has occurred over the years.
The experts at myFico, (Fair Isaac and Company), the largest of the companies that provide software for calculating a person’s credit score say, “Even minor discrepancies in your credit reports can impact your scores negatively – and potentially the mortgage loan interest rate you might qualify for.”
That’s why fixing those mistakes is so important. It could be the difference between getting approved for a loan you can afford and one that would dash your dreams. But don’t give up hope! There are solutions that can improve your chances of qualifying for a mortgage.
Fast credit repair for a mortgage first begins by ordering your credit report. Order the copy from all three credit reporting agencies. You can find them here at AnnualCreditReport.com. If you haven’t ordered a report in the last year, the copies will be free from all three companies.
Once you receive your reports, set aside some time, because you should go over every entry on each report. Make certain everything is accurate. Things to review include:
If you find errors, you must act quickly. These errors could be ruining your credit score. The errors may be a simple fix, but they may also represent identity theft or credit fraud.
Write a letter to the credit reporting company. Include copies, not originals, of the supporting documents. The Federal Trade Commission says, “Your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected.” The FTC offers a sample letter for easy reference.
Send the letter by certified mail with “return receipt requested.” This allows you to know exactly when the letter was received. The bureau has 30 days from the day they receive your complaint to verify the information. If it cannot be verified, it must be removed.
Next, write another letter to the company or organization (such as a credit card company), that provided the information to the credit reporting company. One again, include copies of the supporting documents.
You can go through this process yourself or use a professional service geared for mortgage approval. With this second option you receive a professional opinion to point out things that might raise flags. Some services will even coach you in how to achieve better credit before you start the application process.
If you don’t want to pay for your score, it’s helpful to simply know how the companies calculate your credit score. FICO credit scores range from 300 to 850. Your score is calculated using five factors, which are broken down by percentages. They are:
Paying down your outstanding debts, making payments on time, and having a healthy credit history will reflect positively on your credit score. If you score 650 or less, you may qualify for a loan, but it will be a higher interest loan.
You can guesstimate where your score stands based on how many negative items are in your credit report. If you don’t have any negative items remaining after credit repair, your score should be good. If you have a lot of negative items left after going through the credit repair process, your score will be lower.
You may also decide to sign up for a credit monitoring service. This will tell you where your score stands now. Most services also give you tips on how to raise your score. This can help you build credit before you apply for a mortgage.
Buying a home is not like buying a car. You don’t just find the model you want and make a deal with the salesperson. You must prepare yourself and your finances first. If you don’t take the necessary steps, you may not qualify for a mortgage. Or, if you do, you might only qualify for one with unfavorable terms.
Educate yourself on the best way to apply for a mortgage and you might find your dream home along with a deal you can truly afford.
|Step 1: Gather all the necessary items for the lenders||Two to three months of recent pay stubs||Two to three years of tax filings (W2’s, 1099’s)||At least three months of bank account statements|
|Step 2: Review your credit history and score||Get a free copy of your credit report.||Review your report, check for mistakes and fix all errors.||Evaluate your credit score to determine what types of mortgages you’ll qualify for.|
|Step 3: Prepare for a down payment||Cut expenses as much as possible.||Automate a savings account for the sole purpose of saving for a mortgage.||Prepare to have the ideal down payment of 20%.|
|Step 4: Understand how much home you can afford||Think about spending no more than 28 percent of your gross income.||Pay off other loans and don’t take out loans while you are in this process.||Review your expenses.|
|Step 5: Assess the housing market||Find the neighborhoods where you can afford a home.||Speak to a real estate professional about the market.||Compare condominium prices, townhouses, and single-family homes.|
|Step 6: Raise your credit score and pay off debt||Check your debt-to-income ratio.||Refrain from taking on any new credit.||Pay off any balances that are within reach.|
|Step 7: Get pre-approved for a loan, if possible||Contact mortgage lenders.||Supply all necessary paperwork.||If pre-approved, carefully review document for interest rate and how much they’re willing to lend. Do not overspend on a mortgage.|
|Step 8: Avoid spending on big-ticket items||Even if you’re pre-approved, do not spend on furniture or other items||Keep your spending at a minimum, as the banks will monitor your spending.||Avoid large cash expenditures. The bank may ask for additional banks statements.|
As you see, getting ready for mortgage approval takes time and patience. The process is arduous, but not impossible. If you follow these steps, keep a close eye on your credit report, reduce your spending and build credit, you could live the American dream. But always remember one thing, just because you may one day qualify for a mortgage, it doesn’t mean you can automatically afford it. Review your finances and make the best decision that fits within your budget!
Article last modified on April 12, 2019. Published by Debt.com, LLC .
DISCLAIMER: Debt.com does not provide credit oriented services, but, upon request, acts as a locator service for BBB registered companies. Such credit report resolution specialists will not remove any derogatory information (defined as accurate negative information appearing on a Client’s credit report that actually belongs there), nor will such credit report resolution specialists assist you on improving your credit rating. Instead, as Credit Repair Organization Act compliant companies, such credit report resolution specialists will solely assist you in removing or correcting inaccurate information appearing on your credit reports. While Debt.com endeavors to connect individuals and families with appropriate professionals and resources, individual situations and results will vary from person to person. It is ultimately up to you to determine whether the companies that we may introduce you to are appropriate for your situation.
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