You see the daily headlines and constant media buzz surrounding the mortgage industry-"mortgage market meltdown", "credit crunch", sub-prime crisis"-and you think your chances of getting a home loan are slim to none unless you have perfect credit and funds in the bank for a huge down payment. Well, take heart, because there are still many loan programs available for borrowers with little or no down payment and moderate credit scores.
If you are planning on buying a home in the next 12 months, the first step would be to order your credit report and see if you have any "repairs" to do before applying for a loan. You can purchase your FICO Report on-line from Fair Isaac Corporation at myFICO. If your middle score is at least 620 and you can document sufficient income with W-2's or tax returns you can qualify for most Fannie Mae Agency conforming loans (loan amounts up to $417,000) even with little or no down payment. Although you may qualify for a loan with a 620 score, a higher score will get you a better rate and/lower points paid up front at closing. If your score is less than 620 you will find it difficult to qualify most "prime" loan programs.
Your credit report will include an explanation of your score, what it means to a lender, and suggestions for improving your score over time. It is critical to start following these tips for improving your score as soon as you can. Read over your report carefully and looks for errors. For example, quite often there are old paid collections that still appear on the report as having unpaid balances. Collections are particularly important since any unpaid balance will be added to your overall monthly debts or the lender will require that the collection be paid prior to closing the loan. If you discover any errors, you will need to report these to the credit reporting agencies and they will investigate and respond to you within 30 days.
Once you have cleared your report of errors, you can improve your score by following a "smart maintenance" program. The most important aspect of building and improving your score is to simply pay your bills on time. Every late payment or car payment will create a "ding" on your credit report. If you have missed payments in the past, get current and stay current. Keep your balances low on credit cards and other revolving account. The rule of thumb is to maintain a balance of no more than one-third of the total credit line. If your history is new, don't open any more than three or four revolving accounts. Most lenders want to see at least three accounts with a two year payment history.
Once you have implemented your credit repair program you can monitor your progress by checking your score every couple of months. Checking your own report directly from the credit reporting agency will not affect your score.
Remember, improving your score is a long term process that will take time and patience. However, your efforts will be rewarded by improving the terms of your mortgage and your long-term financial management skills.
Linda Hunter is a top-producing real estate professional and mortgage loan consultant in Long Beach, California.
For more information on California real estate, mortgage loans and credit repair, visit her web site at lindahunter.com lindahunter.com
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