Mortgage Insight News #2:

Credit and Mortgages

By Ray Peña

FICO, Beacon, Mid-Score, your bureau or Tri-Merge - all are words associated with your credit report and "credit score." When obtaining a mortgage your credit score determines whether you qualify for a loan, the best loan program for your situation, loan-to-value and interest rate. Your score can mean the difference of thousands of dollars over the life of your home loan. Whether you know your score or not, understanding how it affects your purchasing power is key to making a sound purchase with the right loan product.

Here is a look at the range of FICO scores:

When applying for a home loan your loan officer, bank/lender will ask you to sign a form giving permission to pull your credit report. When we do this, we are looking for two things:

1) your scores and the median / midscore of the three repositories (Experian, Equifax, and TransUnion) and 2) your history. Your report is a picture of your credit history. We use this information to determine what level of risk we are dealing with for any given borrower. Keep in mind, not all borrowers have or use credit. This does not mean that they cannot get a loan; however, lenders use risk level adjustments to compensate for the lack of credit. For the "No Loan Zone," do not despair. Here are a few tips from Credit Information Service Company (CISCO) to help you get back in the game and purchase the home you deserve:

-Pay bills on time. Delinquents and late pays negatively affect scores

-Keep balances low, high outstanding balances can affect score

-The amount of unsecured credit - only apply for credit you need

-Make sure the information on your report is correct

-Removing negative items from your report improves score

Credit Repair

There are several credit "repair" companies in the market place. Understand that credit repair does not always just involve blindly deleting items from your report. You want to strategically remove items and work the credit scoring system to maximize your score potential. Look for a reputable group with a high success rate. Be sure to research the company and ask for testimonies. There is work involved in obtaining good credit. It all starts with setting your credit goals and getting the knowledge you need to improve you scores. If you are not up to the challenge let a professional do the work for you. It is an investment in your financial future.

Next month we will talk about what lenders mean by documentation types, full doc, stated income, no doc. I will also go over the different documents you will need to have ready for your home loan application. Until next time, "Know your Credit Score."

Ray Peña is a native Houstonian and a Mortgage Consultant for Nation’s Bankers Mortgage. Contact Ray at 281-702-8186 or email raympena@gmail.com.