By Joseph Casella
Many homebuyers are worried about how their credit report will affect their ability to buy a home.
You can be better prepared if you review a copy of your credit report before you apply for your mortgage. That way, for one, you can correct any errors before you making your application.
If you have had credit problems, you can be prepared to discuss them honestly with your mortgage broker. You should provide a written explanation of any negative factors. Responsible lenders know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem that’s been corrected, and your payments have been on time for a year or more, your credit may be considered satisfactory.
Credit scoring, know as FICO scores, is a statistical method of assessing the credit risk of a loan applicant. It’s based on past delinquencies, payment behavior, current debt level, length of credit history, types of credit, and number of inquiries.
Credit scoring will place borrowers in one of three general categories.
• A borrower with a score of 680 or above may be considered an A+ loan. The loan will involve basic underwriting, and these borrowers have a good chance of getting a lower rate of interest.
• A score below 680 but above 620 may indicate underwriters will take a closer look at the file in determining potential risks. Other credit information and letters of explanation may be required before an underwriting decision is made. Loans within this FICO range may allow borrowers to obtain “A” pricing, but loan closing may still take several weeks.
• Borrowers with a score below 620 may find themselves locked out of the best loan rates and terms. Mortgage professionals may divert these borrowers to alternate funding sources. Borrowers may find the loan terms and conditions less attractive than the “A” loans, and it may take some time before a suitable funding source is located.
As you can see, keeping a good credit score is important. If you would like a copy of your credit report you can contact any or all of the following: Equifax (800) 685-1111; Experian (888) 397-3742; Trans-Union (800) 916-8800.
Joseph Casella is a licensed real estate broker and owner of Castle Realty in Astoria. He is editor and writer of “Market Scope,” a newsletter for property owners. He can be reached at 718-707-7019.
