Home loans, FICO and credit scores

Home loans

An integral part of the process of buying or building a new home is securing your home loan.

The more you know about this process, the greater the chance of getting more favorable terms on your loan which can mean the difference of tens of thousands of dollars over the life of your loan.

Most of what you would be judged by is based on documented activities about your past credit history and judgements about your ability to pay in the future.

Your ability to pay in the future is based on specific information like your salary and length of employment with your present employer.

Also, it is important to know that it is not totally hopeless for you to get credit if your credit file is less than perfect for there are also personal loans for bad credit, but it helps to be aware of your credit worthiness before you apply for credit.

Knowing the basics about home loans are important.

One of the most important measures of your credit worthiness is your credit history and this is compiled into what is called your credit score.

Before seeking home loans, one should be familiar with his or her credit score.

Credit scores came into existence in the 1980s, given birth by Fair, Isaac and Company which devised a mathematical model to predict the credit risk of consumers based on the data collected from an individual's credit report. This model is used by the three major credit bureaus: Experian, Equifax and Trans Union and other agencies to offer an overall credit score based on the data in each bureau’s data base.

Your credit score, usually called your FICO score, is weighted heavily in the decision process in granting you a home loan by your lending agent.

Although each credit bureau may have its own way of compiling and analyzing data for your FICO score, they all use a numerical value ranging from 300 to 850 points and lenders attach the same weight to the same numerical value of each.

In other words, a score of 600 from Experian carries the same weight as a score of 600 from Equifax or Trans Union even though the exact information used in compiling your FICO score was different with each bureau.

The higher your credit scores are, the better your credit is and the better credit risk you are considered to be resulting in offerings of better rates on your home loan.

Understanding the meaning of your FICO score and how it affects your home loan

A score of 650 or higher is considered a good credit score. The higher your FICO score is over 650, the better your credit history is and the better the rate you will likely be offered.

FICO scores between 620 and 650 are considered to be average and may require additional documentation from the buyer to get a good rate.

Scores below 620 are considered riskier and may prevent the borrower from getting the best rate on his home loan even though he still can secure credit. However, your home loan may take a longer time to close and more documents may be demanded.

It is a good idea to check your FICO score whether or not you are ready to buy.

Identity theft or erroneous reports on your credit: know about these before seeking a home loan

Another reason why one should check ones credit report is because of the proliferation of identity theft and inaccurate reports on ones credit file.

You do not want to wait until you need credit to realize that your credit report has been negatively impacted because of fraudulent activities or incorrect reporting.

Constantly monitoring of your credit profile is important to quickly catch any irregularity in your credit history and to take steps to correct it. Not to check your credit report is to possibly compromise your future.

There are even services that would automatically monitor activities on your credit file and report them to you as they occur and also quarterly. These services are provided for a fee of course and can be signed up for directly through the credit bureaus.

In the event of erroneous or inaccurate information on your credit file, there are legal remedies.

Inaccurate information on your credit report left unchallenged will harm your chances of getting the best interest rates on your home loan.

You can challenge inaccurate information on your credit file and the credit bureaus are legally bound to make an inquiry and correct any inaccuracies if they do exist.

Warning!      Be wary of services that promise to clean up your credit of bad reports.

Many are downright fraudulent and are pure rip off artists and in the least, their claims are overstated and at worse downright fraudulent.

The best time to protect you credit is before it has been damaged and constant monitoring to ensure that erroneous reports have not been made to your credit file and if they were, to have them removed promptly. Also it is good to see what your creditors see.

Some steps you can take before applying for a home loan to protect your credit t and or improve your credit score.

• Get rid of credit card debt or revolving credit.
• Pay off your credit cards with the highest interest rates first.
• Unless you lack the discipline not to run your credit card back up, keep your paid off credit card. Do not close them. This way you have a favorable balance in your available credit to actual debt ratio.
• Don’t run out and cut up all your credit cards unless you totally lack discipline, because very prudent use of credit can help your credit profile.
• If you already own a home, a home equity loan to pay off high interest credit card is both good and bad. It’s good because you get to replace higher interest rates, larger payments and larger overall payments over the life of the loan with smaller payments, lower interest rates and less overall payments.

  The bad part is that you are taking unsecured credit and securing it with your home thereby really making it a home loan. In the event of some unforseen and tragic mishap, any default on your payments could endanger the ownership of your home. Your home loan is secured by your house or home.

• Do not miss scheduled payments and avoid making your payments late. Always make your payments early. This will help raise your credit score thus improving your chances of getting a better rate on your home loan.
• Avoid applying for credit too frequently within six months of applying for your home loan. Lenders aren’t sure whether you are seeking other home loans. Don’t go wild when shopping for for best offers of home loans..

If your have bad credit and need information on credit repair, click here.

Looking for a home loan to buy or build a new home or a home equity loan, let us know and we will show you how we can help.

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Land in Lehigh Acres, Florida is an affordable means of investing.

However, getting in quickly is important as land prices are getting ready to explode.

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