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Credit Scores & Mortgage Applications

What is a credit score, and why does it matter?

A credit score is a number, ranging from 350 to 850, which represents your credit history.  Lenders perceive you as a higher risk if your score is lower.  Conversely, lenders perceive you as a better risk if your credit score is higher.  Higher risk means a greater chance of loan default.  A greater risk of loan default ultimately means loans cost more money in the form of higher interest rates.

Who calculates these scores, and how have they arrived at my score?

The Fair Issac Corporation calculates these scores which are know as FICO scores.  Your credit score is derived directly from reports by major credit agencies, who track the amount of debt you incur, and whether you pay your debts on time.  The major credit agencies are Experian, Equifax, and Transunion.

Where can I find my credit score ?

You may contact Experian , Equifax , or Transunion  directly.  Or, you may apply through other sites which offer reports from all three agencies: or .   There may be some cost involved.

How can I improve my credit score?

  • Monitor your credit score and your credit reports from all three credit agencies.  Check them for inaccuracies and have invalid information removed.
  • Pay your bills on time.  Get current on all accounts and stay current.
  • Keep credit card balances low, in relation to your credit limit.
  • Don't apply for more credit than you need.
  • Don't close and open credit card accounts frequently, or open too many accounts quickly.  Each inquiry can affect your score.

What will lenders need to know about you?

  • Your past financial history, your credit report, and your credit score.
  • Your monthly income and employment history.
  • Your monthly expenses on credit cards, auto payments, and other debts.
  • Your savings and your estimated net worth.

What will lenders need to know about the property you wish to finance?

  • The legal description of the property.  This may be provided by your realtor, or an attorney.
  • Knowledge of all claims against the property.  This will require a title search.
  • The accuracy and completeness of all public records concerning the property.  This will require title insurance.
  • The value of the property.  This will require an appraisal of the property.
  • In addition, the lender may require information about special insurance requirements, termite inspections and property surveys.

What about Fixed Rate and Adjustable Mortgages?  Which is best for me?

  • Fixed Rate Mortgages generally have a fixed monthly payment amount and interest rate over the lifetime of the loan.
  • Adjustable Rate Mortgages (ARMs) fluctuate according to indices, such as the LIBOR index.  This usually results in lower initial payments due to lower interest rates often for a fixed initial period.
  • Adjustable Rate Mortgages rates and payments may rise as interest rates rise, once the fixed initial period ends.
  • We can help you decide which type loan best meets your needs, considering things such as your tolerance for risk, and long-term plans for owning the home.

What about Points vs Interest Rate?

  • Lenders cover their risk and profit through the loan's interest rate and upfront fees called points.  A point is 1% of the loan amount.
  • Paying a point up front which gets you a lower interest rate over the life of the loan may cost you over the short term, but save you money over the long term.
  • You must evaluate the option in terms of how long you plan to own the home, and you specific cash  and cash flow needs.

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