What are lenders looking at to qualify you for a loan?
By Senior Loan Officer – Thomas Rakeman
With several different loan products available to you, one wants to choose an honest lender, that holds strong principles to work with to help find the program that fits best with that borrower. When working with a reliable mortgage lender, like Fellowship, we will use certain metrics and indicators to find the best fit loan for YOU. In the following three part post, we will explore the three main metrics used to find the perfect loan for the borrower. These metrics are, Credit Score, Loan to Value Ratio, and Debt-to-Income Ratio. In this first part of this three part post we will examine Credit and how this impacts your loan.
~ Credit Score ~
One of the first things Fellowship Home Loans will ask permission to look at is your credit. When we pull credit, this shows us a snapshot, of your credit history. The report we use is a Merged Infile Credit Report. This report allows us to see a full credit history, as dictated by all three credit bureaus, Equifax, Transunion, and Experian. Not only will you receive a credit score from each of these bureaus, but we will also be able to see what lines of credit you have open, the balances on them, and the monthly payment. We will also be able to see any accounts that may be in collection, any judgements you may have, as well as if you have filed bankruptcy.
All of the information is your credit report is relevant.
Credit Score – This will help Fellowship to guide you to which loan program will work best for you. When we are structuring a loan, credit is not only a qualifying factor, but it can impact the rate of the mortgage. A borrower with a higher credit score, may be able to qualify for a better interest rate on their loan, as they have a proven track record of strong credit, and on time payments. A common misconception that people hold is that if they don’t have excellent credit they will not qualify. Here at Fellowship, we have the ability to write mortgages for people with credit as low as 580.
Trade Lines – A trade line, is a line of credit that you have opened. For example, your mortgage, credit cards, a car lease or loan, student loans, a home equity line of credit, or a personal loan. The balances on these trade lines, and the monthly payment are used to calculate your debt to income ratio, one of our other three key metrics.
Collections/Public Records – This section of the credit report will indicate any trade lines that have gone into collection, any judgements that may have been imposed, or if the borrower has had a bankruptcy in the past. While many people believe that if they have collections on their credit or a judgement imposed against them, or a bankruptcy or short sale in their past, that this will disqualify them from a refinance, or a home purchase. The truth is, none of the items listed above will keep you from obtaining a loan. That being said, some factors (bankruptcy or short sale), have indicated waiting periods before one can obtain a new home loan. We encourage you to reach out to us at Fellowship Home Loans, and we can work with you, in figuring out how long the waiting period is, based upon the loan products that work for you.
What can we do to improve our credit?
- Be on time with payments. Work your best to never be late on a payment. This is especially true for a mortgage.
- Do not carry a credit card balance of more than 60% of the allowable credit. For example – Let’s say you had a Credit Card with an allowable credit of $1,000. Every month that you carry a balance of $600 or greater on that card into a new month, it affects your credit negatively. Work to keep card balances below 60%.
- Pay collections, and judgements. Maybe it was an old cable bill you forgot about, or something bigger. Reach out to the agency, and pay the balance, or work out a payment plan.
- Flex your credit muscles! Some people see credit as a bad thing, and choose not to open trade lines, and use cash for everything. You want to have at least three trade lines open, and use them. Put the groceries on them, or the cable bill, things you may normally pay cash for, and pay the balance in full each month. This will help you build a strong credit score.
Credit is a factor when qualifying for a loan. It can dictate eligibility, and rate. When choosing to work with a lender, it is important the work with a lender that holds their borrowers best interest highest. Fellowship Home Loans, a Faith based lender, will work with you to find the best loan for YOU.