It’s true that after a  foreclosure, short sale or bankruptcy there is a significant waiting period for mortgage eligibility but you are not locked out of homeownership forever. Betsy Hanrahan of PHH Home Loans provided the useful chart below to clarify wait times for mortgage eligibility, depending on the type of financing you are going for. If there are extenuating circumstances the wait time may actually be shorter than what’s shown in the table. An extenuating circumstance would be a temporary event beyond the borrower’s control, like loss of a job, medical bills or death of a wage earner. Unfortunately, however, divorce or the inability to sell a home after a job relocation do not qualify as extenuating circumstances.

If you are looking for information or advice about the mortgage qualification process, we have some excellent resources that can give you the guidance you need. Just give us a call at 847-881-6657 or drop us a line and we’ll be glad to refer you to one of our trusted mortgage professionals.

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How Your Credit Score Affects Your Mortgage

But first things first. Let’s do a little Credit 101 to set the stage:

What is a credit score?
In a nutshell, your credit score is a three digit number that represents the risk that you will default on a loan, using your past payment history as a benchmark. Your score will determine IF you can get financing and AT WHAT RATE. Insurance companies, credit card companies and mortgage lenders all use different models to calculate creditworthiness. Since we’re talking about home loans here, we’ll focus on the FICO (Fair Isaac and Co.) score. A high FICO score means you will have an easier time getting a mortgage at a low interest rate.

How is my FICO score calculated?
There are five components of your score:

1. Payment history: Do you pay your bills on time? Yes, it matters.
2. Balances on revolving accounts (you don’t want your balance to be too high as a percentage of your credit limit)
3. Length of credit history: Longevity is good, so don’t cancel that credit card you’ve had since college
4. Types of credit accounts (you want to have a variety)
5. New credit: you lose points when you open a new account
   

What is considered a good FICO score?
FICO scores range from 300 to 850. 720 is around the median score in the U.S., so anything above that is considered a good score.

How do I find out my score?
There are three credit reporting companies which gather information and assign you a score: TransUnion, Experian and Equifax. By law, you may obtain one free report annually from each of them. Visit www.AnnualCreditReport.com to receive your free credit report. It’s the only free credit reporting website endorsed by the federal government. It really is important to check your credit report, because around 80% of Americans have errors and inaccuracies on their reports, and this can have a major impact on your borrowing power. Checking your report can also alert you to possible fraud or identity theft that you’ll need to take action on to protect yourself.

Important Advice for Home Buyers
If you are planning to buy a home in the near future, start now to get your credit report cleaned up. Get errors fixed. Pay down your balances. Don’t open or close any accounts. And DON’T make any major purchases on credit. Even after you are approved for your mortgage, DON’T buy that new flat screen TV or dining room furniture until after you close on your new home. Your lender may check your credit right up until closing.

Little Known Secrets to Improving Your Score

• Not only are you penalized if you have a balance on all your cards but also if you have a balance on none of them. You should actually use your credit (a little) and pay it back promptly.

• When you open a new account it hurts you in two ways: you get penalized just for opening the new account, but that new account also reduces your average length history, which makes your score go down.

• Pay off your smallest credit card first. You get just as many “points” as if you pay off a big one.

• If you’re going to cancel a credit card, cancel the youngest card first (most recently opened). Leave your old cards open, and use them.

• Once your credit balance is above 50% of your credit limit, you get penalized more.

• A corollary to the point above: request that your credit limit be increased, if you have good repayment history on it. This is NOT so you can use it, but to reduce your credit utilization ratio (i.e., the percentage of your available credit you are using).

• You should check your credit score a couple of times a year. But don’t do it too often. Too many credit inquiries (even by you) can hurt your score.

If you are looking for information or advice about the mortgage qualification process, we have some excellent resources that can give you the guidance you need. Just give us a call at 847-881-6657 or drop us a line and we’ll be glad to refer you to one of our trusted mortgage professionals.

If you would like more information on finding a lender and qualifying for a home mortgage, give Brett a call at 847-239-7810 or email him at brett@lotsoffgroup.com.

MSN Money ran a great piece called “10 Things That Can Kill a Home Loan”. Here is their list of things that can keep you from getting a loan:

1.  The house needs too much work – beware if you’re buying distressed property or a real fixer-upper.

2.  The house doesn’t “appraise out” – the appraiser says the house is worth less that the price you and the seller have agreed on.

3.  You have too much debt – if your monthly housing and other debt exceeds 40% of your income, you might not qualify.

4.  You are self-employed and your income has declined – your lender will look at two years’ of tax returns and use the lower income of the two.

5.  You recently started being paid on commission – you may have to qualify based on your spouse’s income, or wait a couple of years to get a loan.

6.  There are issues with your tax return – things like second home expenses, a too-small estimated tax payment or unreimbursed employee expenses can be a problem when trying to qualify for a mortgage.

7.  You can’t get private mortgage insurance – which means you may need a bigger down payment.

8.  The lender doesn’t like the condo association’s finances – lenders may balk if the association’s cash reserves are too low, someone owns more than 10% of the building’s units or the association’s fidelity bond is too small.

9. Your loan takes too long to get approved because the lender has had to cut back on staff- your deal could fall through or your rate could go higher while you are waiting for approval.

10. You don’t stay on top of the paperwork required by the lender – be prepared to prove everything and anything and respond quickly to requests for information.

The bottom line: the mortgage game has changed and there are a lot more rules and restrictions nowadays. The best way to win the game is to educate yourself on the requirements and potential pitfalls, and get your ducks in a row before you try to get a loan. Ask your Realtor for recommendations about mortgage professionals who can advise you well and guide you through the process.

Read MSN Money’s “10 Things That Can Kill a Home Loan“.