Before you get too far into your house hunting, it’s highly recommended that you talk to a mortgage lender to know if you pre-qualify or if you are pre-approved for a mortgage. It is important to understand the difference. Your pre-qualification tells you how much the lender will be willing to lend you. This information comes from the loan officer having looked at your situation, including your income, assets, work history, debt ratios etc to determine how much you would be able to afford each month. Don’t be surprised if it take a couple of weeks to get your mortgage lender to get a pre-qual letter to you.
On the other hand, pre-approval, takes it one step further and will often involve up-front, non-refundable fees. At this point they are looking at your credit history, your assets (to make sure you have enough for the down payment as well as enough left to cover closing costs). Once you’ve been approved, this signals both the real estate agent and the seller that they can now sit down and begin the serious negotiations.
Why your credit history and a good FICO score are so important Derived from your credit report/history, your credit scores are numbers calculated on a point system where you get points for being a good borrower and lose points if you’re not. The most common scoring system used for mortgage approvals is done by the Fair Issac Corporation (FICO), which taps the 3 main credit reporting bureaus; Experian, TransUnion and Equifax.
The range of credit scores starts at a low of 300 and reaches a maximum of 850. People with average credit usually score around 620, good credit at 660, and excellent credit above 720.
Example
As an example, let’s take a look at a person with a credit score of 620 requesting a 30-year loan term for $215,000. They may pay an APR of 7.60%. If they had a score of 720 or better, they could have gotten the same loan at 6.00% (a difference of 1.60%) or a possible savings of $230 every month. If the credit score happened to be below 620 you now enter what is known as the subi-prime market and your mortgage rate could go as high as 8.53%.
How to be sure you get the best rate possible If you want to get the best rate possible, it is highly recommended that you start cleaning up any blemishes on your credit report at least 6 months before you apply for your mortgage loan. If you can also maintain a debt-to-income ratio of 36% or less, you also have a good chance at bumping your score by about 10%. Lenders like to see a history of long-term credit and ability to pay off a loan over time. The goal of any loan applicant should be to make sure their credit report is as accurate and sound as possible.
If you’re looking for more information about mortgages, whether it’s a Portland home mortgage to purchase a new home or a Portland refinance for your existing home, you will find a lot of good information at www.PortlandRefinanceHelp.com
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