Mortgages and Credit Reports
Many home buyers are very worried about how their credit report will affect
their ability to buy a home. We even heard one story that an applicant was denied a
mortgage because he had returned a rented videotape late!
Of course, that could never happen. Most people will not need to worry about the
effects of their credit history during the mortgage process. However, you can be better
prepared if you get a copy of your credit report to review before you apply for your
mortgage. That way, if there are any errors you can take steps to correct them before you
make your application.
If you have had credit problems, be prepared to discuss them honestly with your
mortgage lender and come to your application meeting with a written explanation.
Responsible mortgage 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 in a higher grade than you might think.
The mortgage industry tends to create its own language and credit
rating is no exception. BC Mortgage lending gets its name from the grading of one's credit
based on such things such as payment history, amount of debt payments, bankruptcies,
equity position, credit scores, etc.
We have compiled a guide to help you estimate your credit grade. This is only a
guide as many lenders have exceptions that may result in more strict or more lenient
guidelines.
When trying to figure your credit grade, keep in mind the following principles:
· Other
Things Being Equal-When you have derogatory credit, all of the other aspects of the
loan need to be in order. Equity, stability, income, documentation, assets, etc. play a
larger role in the approval decision.
· Worst Case Scenario-When determining your grade, various combinations are allowed, but
the worst case will push your grade to a lower credit guide. Mortgage Lates and
Bankruptcies are the most important. However, American Heritage can help you regardless of
past credit history, whether it's bankruptcy, slow or poor credit, or no credit.
· Going
Once, Going Twice-Credit patterns are very important. A high number of recent
inquiries and more than a few outstanding loans may signal a problem. A "willingness
to pay" is important, thus late payments in the same time period is better than
random lates as they signal an effort to pay even after falling behind.
Why do we need credit reporting?
Credit reporting is needed because it provides the information that helps consumers make
purchases, secure loans, pay for college educations, and manage their personal finances.
Credit reporting makes it possible for stores to accept your checks, banks to offer credit
and debit cards, businesses to market products, and corporations to better manage their
operations to benefit the world's economy.
What is a credit inquiry?
An "inquiry" is a listing of the name of a credit grantor, or authorized user
who has accessed your credit file. Each inquiry is posted to the credit file so you know
who has obtained a copy of it. Credit grantors post an inquiry before offering you a
pre-approval credit card application. These are listed as "promotional"
inquiries on your credit file because only your name and address were accessed, not your
credit history information. They are NOT sent to credit grantors or businesses for reasons
of credit reporting. They are listed for your informational purposes only.
How does divorce affect consumer credit?
A divorce decree does not supersede the original contract with the creditor, and does not
release you from legal responsibility on any accounts. You must contact each creditor
individually and seek their legal binding release of your obligation. Only after that
release can your credit history be updated accordingly.
Should I use one of those companies that promise to help correct my credit?
It's your choice. However, beware of companies that promise to remove accurate information
from your credit file. Accurate information cannot be removed from a credit file. There is
nothing they can do for you that you cannot do for yourself by contacting the credit
reporting agencies directly. Only time will heal a delinquent credit history.
Simply put, mortgage insurance protects the mortgage lender against
financial loss if a homeowner stops making mortgage payments. Lenders usually require
insurance on low down payment loans for protection in the event that the homeowner fails
to make his or her payments. When a homeowner fails to make the mortgage payments, a
default occurs and the home goes into foreclosure. Both the homeowner and the mortgage
insurer lose in a foreclosure. The homeowner loses the house and all of the money put into
it. The mortgage insurer will then have to pay the lender's claim on the defaulted loan.
For this reason, it is crucial that the family buying the home can really afford it --
not only at the time it is purchased, - but throughout the time period of the loan.
Although the cost of the mortgage insurance is paid by the home buyer, or borrower, the
mortgage insurer works directly with the lender. Mortgage insurance is available to
commercial banks, savings & loans and mortgage bankers, all of whom offer mortgage
loans to home buyers.
Remember that mortgage insurance is not the same as credit life insurance, also called
mortgage life insurance. This type of policy repays an outstanding mortgage balance upon
the death of the person who took out the insurance policy.
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