Is Your Credit Suitable for New Home Financing?

You and your family have finally found the house of your dreams. You may have been sitting on the fence, waiting for the right time to purchase your new home, but the last several years have been financially challenging. What will you do if you come across the perfect floor plan for your family and you need mortgage financing?

Your first move should be to contact a reputable lender, like our folks at C&F Mortgage Corporation. We will discuss your financial situation, asking questions about your income, assets and credit. While all three components are integral parts of the loan process, we will start with your credit.

Hopefully, you have some credit accounts open in your name such as car loans and credit cards.  If you have some established credit and you pay your bills on time and don’t max out your credit cards, you should have good credit.  But how will you know?  The three major credit repositories, Equifax, Trans Union and Experian have established formulas to determine your credit score.  Each company has a slightly different formula designed to get you your number.  There is a good chance you will have 3 different scores ranging from the high 400’s (unacceptable credit) to the low 800’s (excellent credit).  It is rare that a potential borrower has all three numbers the same, but often times they are close and the mortgage lender will use the middle score as a basis for determining qualification as well as interest rate.

Most lenders are looking for a mid score of 640 or higher to do a mortgage loan.  Of course each lender is different so this number is just a guide.

What do you do if you want to purchase and your score is below par?

The first thing that needs to be determined is exactly how far off your credit score might be.  If you are hovering around 635 and we need 640, your loan officer may offer you a few pointers on how to gain an additional 5 points. You may have to pay off a judgment or collection, or pay down a balance on an existing credit card. These are just few examples of credit moves that can be made to improve your score in a relatively short period of time.

Should I work with a personalized credit care service if my credit is really bad?

Sometimes life treats us unfair and the result is damaged credit. Divorce, medical situations and loss of a loved one all can have an impact on one’s ability to continue employment and pay bills on time. A good loan officer can review a credit report and recognize bad times. If recent late payments are the reason for a low score, there is not much that can be done. Getting back on track by getting caught up and making payments on time is the fix, although it will take months of this practice to ramp up your score assuming no further setbacks.

If you are faced with past due bills, collections and judgments, and you are not sure which way to turn, a qualified personalized credit care service can help.   It may be to your benefit to seek assistance from a credit care service.   As these services charge a fee, it is very important that you are committed to fixing your credit and working with a good credit coach.  During the selection process I would advise you to be extremely careful and contact BBB and references before a particular service is selected.  In due time, a good credit care service can get you back on your feet.

What if my credit is good, say over 640, but not great, like 780?

It is always nice to know that your credit is good enough to get you your mortgage loan.  Depending on the loan program, you may be charged a slightly higher rate for a 645 credit score opposed to 780.  Look back at your report for the last 36 months and review your pay history.  Have you paid anything more than 30 days late?  Had any judgments or collections?  Sometimes there are collections as low as $ 15 or $ 20 that is keeping your score low.  Having at least 3 active credit lines paid on time for 36 months with no collections or judgments should be good enough for  you to greatly improve your credit score.

It is important to have good credit going into the mortgage loan process.  While a lender cannot approve your mortgage request on just credit alone, it will smooth out the process and allow the lender to focus on your income and assets in an effort to hear that beautiful saying

“Your loan request is approved “.

By Brandon Beswick

Branch Manager, C&F Mortgage Corporation NMLS # 160095