I am running into buyers that cannot be convinced to sit down with a mortgage loan officer to be pre-approved for financing early in the home searching process. Perhaps if I share a true life story about getting a mortgage in 2009, they will be more receptive to my nagging!
A client that I've worked with for several years was pre-approved for financing with a score approaching 800. During the time that he was shopping around for investment property, he made a major purchase on a deferred payment plan. The payment plan was a new line of credit and adversely effected his credit score by 70 points! He no longer qualified for the mortgage because his credit score was 7 points too low and he was stunned. He assumed that because he paid all his bills on time his credit was excellent. To make this even harder to understand, this buyer has enough cash in the bank to make a cash purchase but the lenders absolutely will not give him a mortgage.
In another situation, I had a client who's credit card company simply reduced the line of credit because of the credit crunch. Initially, my client was not the least bit concerned because she doesn't carry high balances but when she applied for a mortgage, she didn't qualify for as good of a rate as she had three months earlier. Her credit scores increased significantly because the reduction in the line of credit meant suddenly she had a higher debt ratio to credit available. It was the same effect as if she had made a major purchase on credit but this was totally not a result of her actions!!!!
There are many things that effect the FICO score that is used to qualify an individual for financing. Payment history is very important but so is the amount of debt owed as well as the number of new credit accounts opened and the length of the credit history. And from time to time, I still run into buyers that do not have any credit history which makes it just as difficult to get a mortgage as bad credit.
If you are thinking about buying real estate and have not recently won the lottery, please, please, pretty please start the process with a meeting with a mortgage loan officer. Not only will you avoid waisting a lot of time, you will be much less likely to have surprises and disappointments when you find a property that you want to purchase.
1 comment:
Excellent post!!! My name is Tony Villani and I am a Senior Loan Officer with Fairport Savings Bank, so in working with many different borrowers as of late, I can share many of the same stories. Alot of borrowers are unaware as to the calculations that go into FICO scores, which can hurt them in the immediate future!! Many borrowers who shop around, or even get into online mortgage brokers are unaware of the dangers of having your credit report pulled multiple times by a lender VS through a credit card company. The worst thing a borrower can do is submit their social security number to multiple lenders while they are shopping around. Every lender will want to pull a credit report to check the FICO score in order to quote a rate and with how many "points". I suggest getting general information from multiple lenders and narrowing your choice down to who is willing to give you the most information and even take the time to sit down with you to go over everything that is involved. Get a feel for the person you are dealing with directly, and always remember that the lowest interest rate isnt always cracked up to be that way. Also, avoid online brokers!! They take your information and submit it to up to 7 or 8 different lenders. In turn, they ALL pull a credit report on a borrower, and thats when you can see your nice credit score rapidly decrease to a level where you might have to pay large fees or even get denied for a mortgage!!!
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