Mortgage Application Factors: Part 1
Last week we went over why you should choose an RMS Loan Officer. The next piece of the puzzle is the application. At first, it can be difficult to wrap your head around all the mortgage terminology and which loan program would be the best fit for you.
We want to help prepare you with everything you need to know before taking the next step to apply. Our experienced Loan Officers will be there to guide you home every step of the way.
The information our Loan Officers are looking for to start the application boil down to three main categories: your credit, your income and employment, and your assets. They will need a feel of your relationship with money to gain a full financial picture. This will aid them to lead you down the path that best suits your personal needs.
Application Factor – The Credit Piece of the Puzzle
The first major piece to “the mortgage puzzle” is your credit history. The Loan Officer will obtain a credit report that includes information from all three credit repositories, Equifax, TransUnion, and Experian. This information will help determine what the best course of action will be moving forward with your loan application.
What Determines a Credit Score
Credit scoring is an easy way to measure the amount of credit you have and have paid on time. Generally, credit scores will be in the range of 400-850. The higher the better. A common concern for first-time home buyers is how their credit score will play a factor into the mortgage process if their score is not quite what they would like it to be.
Your overall credit history is analyzed to compute your credit score. The type of loans that factor into your credit score include:
- Student loans
- Credit cards
- Car loans
- Past and present mortgages
The credit report also provides information on:
- How long you had debt
- Amount borrowed
- Monthly payment
- Payment history
You should be aware that any negative information on a credit report like bankruptcies, foreclosures, or judgements are also factored into the credit score.
It is always a good idea to monitor your credit so you can stay aware of your financial standings, remind yourself to be smart with your money and be prepared when the time comes to apply for a loan.
Credit Scoring Models
You can get your credit score by looking at one of the many credit score monitoring companies like Credit Karma, but this only provides what is called the consumer credit report model, which rarely tells the whole story.
Banks and mortgage companies use a different model called a risk-based credit score which gives more insight into the information they need to assess the risk associated with giving out a large amount of money.
It is normal to feel hesitant about someone pulling the risk-based credit score because it will be lower than the consumer report you are used to. It provides more in-depth information, so it will usually be lower for everyone. All-in-all, the difference between your loan officer pulling your credit report versus you obtaining a report typically will not affect which loan option you proceed with in the end. Educating yourself about credit history will make you feel more confident about making financial decisions.
Rest assured, when working with an RMS Loan Officer you can be confident in trusting they always want the best for you and their expertise will guide you to a plan you will feel comfortable with.
Be on the lookout next week as we continue our Mortgage Application Factors education. We will discuss the importance of income, employment and assets in association with a mortgage application.