How To Get a Home Loan or Refi
Before you seriously look for a home to buy, consider seeing what your credit score is and credit history. Credit plays a major role in whether you qualify for a loan that fits your situation. other factors come into play, but credit is a major one. Those with excellent credit will get loans easy and at the best rates, those with poor or bad, may not qualify at all, or if they do, will have to pay for it. Credit determines what loan you might get, it determines the maximum LTV (loan to value), or how much of loan is needed based on the house you want to buy and at what interest rate. Bad credit means the bank is not willing to loan you a lot, so, you have to pay more of the purchase price and at a higher interest rate.
Lenders always use a tri-merge credit, meaning they will get reports from Experian, Transunion and Equifax and always use the middle credit score of the three agencies. You cannot have any bankruptcy in the past 4 yrs, no late payments for a year after you have had a bankruptcy. If your credit has had a lot of inquiries within 90 days, that is a negative to a lender.
The lender also looks at your housing ratio and debt ratios. Both stem from your gross income and cannot be more than 28% of it for housing or 34% for Debt (including housing). Lenders are reluctant to loan if they are higher. If your account has any collections, your credit score suffers a 80 pt. hit. Lenders also look at your payment patterns for the past 2 yrs, steady employment for 2 yrs.,late payments. You cannot have any foreclosures in the past 5 yrs.
To a lender, high credit scores are 740 or more, good credit is 630-720, poor credit is 590-620, bad credit is 580 or less. Lenders will not loan if bad.
Your credit score comprises of:
35% past delinquencies, 30% current debt owed, 15%How long the credit accounts have been opened, 10% for inquiries or new credit, 10% of the types of credit on your record.
Since federal law allows everyone to get a free credit year once a year, before you look for a home to buy or refi, look at your credit report to see if it is worth pursuing.
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