subject: Planning for a Mortgage Loan Can Begin Years in Advance [print this page] Planning for a Mortgage Loan Can Begin Years in Advance
CREDIT REPORT and SCORE
This is going to be the biggest decision making tool for the lenders. They will gather a lot of information from your credit report. All your credit information will be at their fingertips to show them if you are a risk or if they can trust you enough to loan you what you need to buy your home.
What the credit report will tell them.
Debt-Ratio-This information is determined by adding your debt payment together and subtracting them from your income. The percentage of income going towards bills is your debt ratio
Payment History. The lenders will look for timely payments. They want to know that you will pay them back on time. This trust is earned and displayed on your credit report.
Increasing your Credit Score and Improving your Credit Report can take years if you have black marks on your credit report or if your debt is too high. This is why it is important to start your planning early. If you have negative information or high debt ratio, this only will cost you more on your loan. With a higher interest rate you will pay higher payments and the total cost of the home will increase significantly. This may change the amount of a loan you can afford. Depending on your monthly budget, if you were planning to buy a $100,000 home, you may find with higher interest you are only be able to afford $65,000.
Loan amount: $100,000.00; Terms 30 years; No down payment
Interest
5.5%
Payment (principal and interest only)
$567.79
Interest
10%
Payment (principal and interest only)
$877.57
To get a better interest you need to show that you are responsible with your debt. To do this follow these steps:
Pay your bills on time. Try setting up automatic payment through your bank account. This will help make sure your bills are paid and you won't have to worry about forgetting.
Pay down debt. You will notice that I didn't say pay off your debt. Even though the goal is to have a better debt ratio, you still want to show that you can manage your credit. If you have none to manage, it can actually count against you. If your concerns are paying interest on those credit card debt you set up an auto pay bill. Using a utility bill is a great way to do this. Say you pay your electric bill with your Visa Credit card. Then you set up auto pay to pay that Visa card. You have now eliminated the interest cost and also showed on time payments. It is great to be debt free but you have to pay those utilities anyway.
Don't Cancel Credit Cards. One-third of your FICO score come from the about of available credit you have vs. what you use. If you have a $1,000 credit limit but only use 100 of that per month, this will give you a higher score.
Make sure that all the credit and history is yours. There is a large number of people that find debt on their report that doesn't even belong to them. This may take some time but you must make sure that everything on the report is yours. This actually should be done yearly. You can go to www.annualcreditreport.com to get a report from all three credit bureau agencies. If you find errors, submit a letter to the agency explaining that this in incorrect. They will then contact the company reporting the information. That company will then have a time period to submit proof that it is your debt or it will be removed.
Obtaining a great credit score may seem like a game, but in the end the only one that is going to pay or benefit is you. Do the work needed to get the best deal you can.
