How to prepare for mortgage pre-approval in 2020: and maintaining credit in uncertain times
How Can I Protect My Credit in Uncertain Times?
Things are scary right now. You might be worried about your ability to work due to restrictions in place to slow the spread of COVID-19. Or worse, what if you get sick?
If you have credit card bills or a car loan (or you already have a mortgage), reach out to your creditors and ask them if they have insurance programs you can enroll in to ensure your debts are paid in the event of job loss or a health crisis. Most companies DO have this protection and they will offer it to you for a small monthly fee. These programs allow you to delay payment for 30 to 60 days, and in some cases, up to 6 months.
When you’re in the process of improving your credit and trying to obtain a home loan these programs can help you maintain good standing, leading ultimately to improved scores.
What if I have bad credit, can I get approved for a home loan?
The short answer is, yes. You Can Get Approved for a home loan.
The more complex answer is, mortgages for people with low credit scores cost more over time. Meaning, the interest rate offered to someone with good credit will be lower than one offered to someone who is a bigger credit risk. The good news is that credit scores are fairly malleable if you have the right information and take the right steps toward improvement.
To obtain a pre-approval start by understanding what you’ll be asked to provide:
- Proof of income – You’ll need to provide your W2 statements for the past two years, recent pay stubs, and proof of additional income, and your two most recent tax returns.
- Proof of Assets – This ranges from your bank statements to investment accounts, proof that you have the monies for the required down payment.
- A Credit Score of at least 620 – the higher the better for lower interest rates.
- Employment Verification – The lender will call your employer to verify you work there, and if your length of employment is under two years, they will likely call your previous employer too. If you’re self-employed, a lot more is required.
- Documentation – you’ll need to provide your Driver’s License and your Social Security Number.
Credit Score
How does your credit score impact a pre-approval?
Think of a credit score as a grade for how creditworthy your financial history seems. I say “seems” because credit scores are not always accurate. In fact, one in five Americans have mistakes on their credit reports. Learn more about that HERE. A lack of credit history impacts your credit score as much as a history of late or missed payments. In order to qualify for a home loan, most lenders require a score of at least 620. There are programs for applicants with lower scores, those borrowers typically have to pay a larger down payment.
We are here to help you increase your credit score and restore your financial health!
Credit Score Help
What are the factors that determine your credit score?
- Payment history | 35%
Are your bills paid on time? This is the best way to improve and maintain a good credit score. If you’ve missed a payment. Make sure you pay it right away and work to stay current from here on out. - Amounts owed | 30%
Lenders are like Goldilocks. They don’t want you to use too much credit, they like you to use just the right amount. So, if your cards are maxed out … it’s time to get those balances down to around 30% of your limits. - Length of Credit History | 15%
This is really the only piece of the credit pie that just takes the time it takes. Fortunately, it’s only about 15 % of the puzzle. Lenders just like a long history of debts being paid back as agreed. Pretty simple standard. - New Credit | 10%
It may be tempting to open a lot of new accounts once you begin to qualify for credit cards or loans. Slow your roll, too many new accounts in a short period of time can hurt your score. - Mix of Credit | 10%
Lenders like to see all types of credit being used. Student loans, car loans, credit cards, and ultimately, mortgages do improve your credit score.
Life happens and at Improve Credit, LLC we’ve helped people from all walks of life. From physicians drowning in student debt, unable to qualify for home loans, to the young waitress trying to buy a car with no credit history at all. Money is a tool, and so is credit. We do our best to not only help you take actionable steps toward better credit, but we also hope to shift your attitude about money and credit so you can put it to work for you in the days ahead.
Make reaching out to us the first step in your plan to triumph over the financial hurdles that have caused you stress, frustration, and hardship. Consider us the light at the end of the credit tunnel. Together we can pave the way for your brighter future.
Credit Pre-Approval
What Does Pre-Approval Actually Mean?
When a lender decides, based on the financial information you give them, that you’re a good candidate for a mortgage they typically “pre-approve” you for a loan up to a certain dollar amount. In the pre-approval, you’ll also usually be made aware of the interest rate and what your monthly payment might be should you find a home at the maximum of your pre-approval amount. The lender will provide a letter for your Real Estate agent to use when negotiations begin after you’ve chosen a home. So, a pre-approval is quite different from a pre-qualification, which is just an estimate of what you might be able to spend on a home.
Lenders will pull your scores from the three major credit bureaus. Experian, Equifax, and Transunion. Because each creditor does report differently, you may have a different score from each bureau. This is common. If you see inaccuracies on your credit report watch this VIDEO (link) for some tips to help navigate those waters.
Here at Improve Credit, LLC we are committed to helping you overcome credit challenges so you can take advantage of the benefits good credit can offer you. In addition to our suite of services, we’re real people who will treat you with respect no matter your current situation.
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