WHAT DO LENDERS LOOK FOR?

As you can imagine, a good credit history is critical in obtaining a loan for your dream home! If you are like most people, you have no idea as to what the most important factors are that lenders use in determining the amount of money they are willing to lend to you.

While lenders won’t share that kind of information freely with the public, there are some areas that are commonly known to be critical to your success.

It is important for you to know how critical your credit rating is in qualifying for a loan. Banks rely on one of three major credit repositories to provide them a computer-generated credit score that depicts an evaluation of a person’s debt repayment history.

Those three repositories are Equifax, Experian, and TransUnion.

Your credit score plays an important role in determining whether a potential lender will consider you a good or bad credit risk. It includes information about your past and current loans and credit cards, the lending institutions that you borrowed the money from, and whether you have made your payments on time.

Other factors that affect your score are: your occupation and how long you have held your job; how long you have lived at your current address; do you own or rent your current home; your age (50 or older is considered a lower risk); the ratio of your current balances to your available credit line.

Another important factor at the time of your application is your debt-to-income ratio. In other words, how much money you owe compared to how much income you have.

For conventional loans, there is a 28% housing expenses-to-gross income limit and a 36% total expenses-to-gross income limit. For example, if your gross monthly income is $5,000 then your monthly Principal, Interest, Taxes and Insurance (P I T I) may not exceed $1,400 (28% of $5,000).

When you include your other expenses like car loans, credit cards and other obligations, your total monthly debt payments may not exceed $1,800 (36% of $5,000). If either ratio is exceeded, you must pay down some of that debt prior to being able to qualify for the loan.

To ensure that your credit report is correct, go to the Internet to request and view your credit report online. Visit experian.com, transunion.com, or equifax.com. You will need a valid credit card. If you discover an error on your report, you may inform the credit repository of the error.

The repository then has 30 days to investigate your claim. The repository presents your claim to the source of the error, such as a department store. The source then investigates the error and reports directly to the credit repository.

If your claim is valid, the credit repository must provide you a written report of the results and change your credit report as appropriate.