Check Your Credit Now for Faster, Easier Home Loan Approval

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Check Your Credit Now for Faster, Easier Home Loan Approval
5 months ago
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If you have managed to escape financial damage from the fall of the housing market in recent years and are also gainfully employed, you may be thinking that now is a good time to buy a house.

Home prices have fallen 30 to 40 percent from their bubble-highs of 2006 in some areas. Better yet, interest rates for 30-year mortgages are at all-time lows, with some lenders offering rates of just over four percent. Add the two together, and can you say "opportunity?"

Of course, nothing is all roses without a few thorns. While home prices have come down, appreciation is non-existent in many areas. So if you're thinking of buying a house to resell for a handsome profit in a year, better think again.

And as for low interest rates? They come with enough qualifying restrictions and requirements to give any applicant some nervous indigestion. The days of quick and easy loans are long gone.

But there is no need to worry. If you plan to buy a house within the next three to six months, you'll have time to take some simple actions that will make the loan process more pleasant and successful. Just give yourself a chance to get your finances in order before you start loan shopping. The key word is "plan". A good place to begin is your credit history.


Get Your Credit Reports and Your Credit Score
To avoid unpleasant surprises, you don't want your lender to have more information about you than you have about yourself. Obtain your free credit reports from all three reporting bureaus: Experian, TransUnion and Equifax.

Once your get your reports, check them for accuracy. Is all the information, including your name, occupation, current and past addresses, names of creditors, balances owed, all correct? Does any report still list a debt balance that you've paid down?

If you see any errors, contact the agency immediately. Phone numbers and addresses of each bureau will be on your credit reports. Get copies of all supporting documents to back up your claim, such as canceled checks, release letters from lenders, and so on. You will have to present your claim in writing. The reporting company is required by law to investigate your claim within 30 days.

What Is a FICO Score and How Can You Get Yours?
Lenders use FICO scores to determine your credit worthiness. When you apply for credit of any kind, such as a credit card, auto loan or mortgage, lenders want a quick-and-easy way to rate you. Your FICO score affects the amount of a loan and the terms lenders will offer you at any given time.
FICO stands for Fair Isaac Company, the organization offering this scoring service to lenders. Your FICO score is based on the information the three credit bureaus have on file. As this information changes, your credit score may go up or down, although sometimes it takes a while for changes to show up.
Factors that determine your score include your payment history, the amounts you owe, the length of your credit history, any new credit you have received, and the types of debt you are carrying. The exact mathematical formula used to get your exact number is a company secret.
While you are entitled to get free credit reports from the bureaus, you will have to pay to get your FICO score, but it's definitely worth the modest fee.


Repairing Your Credit
If your credit history has been shaky, it will affect your ability to get a home loan and limit the types of loans available to you. If you can obtain a loan, it most likely will have substantially higher interest rates than you see advertised, require a larger down payment and usually higher closing costs and fees.

It makes sense to do whatever you can to improve your credit history before applying for a home loan. If you want to get into a home right away because you're concerned about prices going up again, expect to pay more for your impatience!


What is the number one thing you can start doing now to improve your credit rating?
First, pay off your delinquent or collection debts as soon as possible. Second, make all your current debt payments on time. Being consistently late is considered a serious red flag by lenders, even if you never miss a payment. Missing a payment and being late together is double trouble.

It takes years to get episodes of bad credit performance off your report, but you can go a long way in just a few months by making every one of your required payments on time and clearing up delinquent balances. This will show lenders that you are serious about improving and may help you get a better rate. Lenders do, after all, have some human traits, and some will reward your efforts even if they are recent changes.


Go Credit Free Until You Buy Your Home
Do not buy any new big-ticket items on credit until your home purchase is complete. That means no vehicle loans, no "don't pay until next year" deals on furniture or appliances, and no new credit cards.

Your final credit check will be done just before your lender wires the money just before the final closing. If anything looks "off," they can, and will, deny you financing at the last minute. It is not a risk worth taking!
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