Types of Mortgages
Credit Overview
The concept of credit - the reputation for paying your bills on time - makes it possible for you to acquire merchandise or money with the understanding that you will repay later. Your history for paying your bills on time is collected by a credit bureau or credit-reporting agency. These businesses gather, maintain, and sell information about consumers' credit histories. They collect information about your payment habits from banks, credit unions, finance companies, or retailers.
Why is it important?
Generally lenders look at several things: your income, your down payment or equity, your credit history, how much money you've saved, and the property you plan to purchase or refinance. When studying your credit history, almost all lenders look at your credit score and your debt-to-income ratio. Lenders use credit scores, known as FICO scores, as an important factor in the decision whether or not to offer credit. The scores can range from 375 to 900 points. You're likely considered to be a better credit risk if your FICO score is high.
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Credit Problems?
If you have a lower credit score, don't assume that your choices are limited to high-cost lenders. If your credit report contains negative information that is accurate but stemming from unique circumstances such as illness or temporary loss of income, be sure to explain your situation to the lender or broker. Don't assume that the only way to get credit is to pay a high price. Take the time to shop around and negotiate the best deal for you. It may be that your past credit record is not as good as you might wish. If you're currently having credit problems, you may not be in a position to buy a house until they are resolved.
The following conditions will play a factor in your mortgage lender's decision to provide you with a loan:
Bankruptcy: In most cases, lenders prefer that you wait at least two years after a bankruptcy is resolved before taking on another large debt such as a home loan. Bankruptcies can remain on your credit report for up to 10 years. It may be helpful for you to explain the circumstances to the lender under which you declared bankruptcy.
Foreclosure: Having a foreclosure on your records doesn't mean that you can never buy another house. The mortgage lender will, however, want to know the reasons for your foreclosure. Most lenders will expect you to wait three years after a foreclosure before you apply for a new mortgage.
Debts: Having too much debt may lower the chances for you to buy a home or refinance a mortgage. Making late payments or skipping payments will show as derogatory or negative items on your credit report. Taking steps to improve your credit record is one of the most important things you can do.
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Credit Reports
A consumer credit report is a document that contains a record of an individual's credit payment history. The report contains four types of information: identifying information, credit information, public record information, and inquiries.Identifying information includes your:
- Name
- Current and previous addresses
- Social Security number
- Year of birth
- Current and previous employers
- If you're married, your spouse's name
Credit information includes credit accounts or loans you have with:
- Banks
- Retailers
- Credit card issuers
- Other lenders
The information contained on your credit report remains for seven years from the date it's first reported, and then cycles off automatically.
Whether you have credit problems or not, it's a good idea to review your credit report for accuracy and completeness before you apply for a loan. If there is inaccurate information in your credit report, you have the right to dispute it and have it removed.
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Beginning December 1, 2004, consumers are allowed to order one free copy of their credit report. To order a copy of your credit report, contact:
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If you've been denied credit because of information on your credit report, the lender is required to provide you with the credit bureau's name, address, and telephone number -- and you're entitled to a free copy of your report from that credit bureau. The credit reporting industry is regulated by the federal Fair Credit Reporting Act, which is administered by the Federal Trade Commission (FTC).
