Mortgages - Increasing Requirements And Your Credit
If you have ever purchased a home you know exactly how much work you go through to become approved. With rising foreclosure numbers, lenders finding themselves in financial trouble, property values declining, and a volatile stock market, mortgage companies are finding it necessary to tighten the requirements of loan applications.
In conversation with a friend, Brian Corbin, who does commercial and residential lending, said that five years ago, if you had a pulse and a credit score he could get them financed. He described the loan approval process as analyzing the applicants financial situation to see if they fit into a conventional mortgage. If that will not work due to circumstances, then there were sub-prime loans available. He described the conventional market as a box, if they didn't fit into the box, then the sub-prime lenders have a larger box which is larger with more options. Sadly that box is shrinking at a increasing rate.
What does this mean to you? Unless you are sitting on a chunk of money and an 800 credit score, it may be difficult to get financed for a home. It is imperative that your credit is as clean as you can manage. Here are some tips.
1. Get a copy of your credit report. Review it for accuracy. Any inaccurate information that you find will stay there unless you dispute it.
2. Dispute errors. Disputing the information should happen in two parts. You should notify the creditor in writing by certified mail that they have done something in error. Be respectful and professional, remember, you need them to do something about it. Second, you need to notify the credit bureau, again by certified mail that you are disputing a record and ask them to investigate the concern.
3. Pay your bills on time. By paying on your debt in a timely manner creates a positive credit history that lenders will look at.
4. Keep your credit card debt low. Lenders become concerned with your ability to pay back debt if they see several accounts open that are nearly at their maximum level. It appears that you as the consumer may have become accustomed to living beyond your means hence the nearly maxed out limits.
5. Pay back the small loans. Debt to income ratios play a part in your credit score and your credit worthiness. If you have a small personal loan hanging out their you have been paying on, get rid of it as soon as you can.
Once you have done the work of cleaning up your credit, you should set realistic expectations when shopping for a home. With the responsibility of home ownership comes increased expenses. Utilities, taxes, and insurance all add to your payment. Brian also mentioned that many of his customers don't have a realistic budget. They list basic expenses such as their bills, gas, and food but they don't take into consideration how many times they golf or go out to eat. Truthfully listing your expenditures will help any lender determine the amount of home you can afford.
Finally, get pre-qualified. Most realtors are so excited to see you and show you homes, they rarely take into consideration that you don't really know how much house you can afford. If you take to time to work with your bank so that you are prepared to sign, you wont be disappointed when the bank tells you that the house you fell in love with is out of your reach. It will save many people time and frustration.
The economy will rebound and loans will get easier to obtain but all of this takes time. The harder you work to keep your credit score up, the easier time you will have in reaching your goals.
The author Erine Adams is excited to bring trusted information, product reviews, and anything relevant to credit repair, building wealth, and the goal of living debt free. Visit http://www.debtisatrap.com and http://www.creditsecretsbible2008.com for the best, current, straight up information available regarding personal finance.