The published interest rates that you see on the internet and in newspapers are for the best qualified borrowers – those with high income, low debt and high credit scores. For those of us less fortunate, interest rates will be higher.
If you are planning to refinance or buy a new home in the near future, there are things you can do to improve your chances of getting a mortgage and at a good rate.
If you have a current mortgage, make sure you do not miss any payments. If you miss even one payment by 30 days, you will need to make another 12 payments on time before you will be able to apply for another mortgage.
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Obtain a copy of your credit report – you can get one free from each credit bureau once a year. Here are some things to look for:
You will almost always need a credit score of at least 620 or higher. The higher your credit score the more likely you will get a mortgage and the better the interest rate. You can improve your credit score by paying off as many debts as possible. For example, if you are making a large monthly car payment and are in a position to pay it off, this would make a big difference in your debt to income ratio resulting in an increase in your credit score and your purchasing power. If you have unused accounts with open lines of credit, close these accounts.
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You must have a credit record to have a credit score. If you are in the habit of using debit cards and/or cash for all your transactions, you may not have a credit history and this can result in a low credit score. Well in advance of your plans to apply for a loan, consider opening one charge account – charge a few items each month and pay the balance due each month.
If you failed to pay a debt and the debtor has listed this as a charge off on your credit report, this will be a problem. You will usually be required to make good on these debts before you can get a mortgage. So don’t wait, settle these before you start your home search. Better yet, pay all debts and avoid charge offs.
New banking laws require lenders to identify the source of all money being used for the down payment and closing costs. Gifts from family members are usually allowed; gifts from non-family members are not. When you apply for a mortgage, you will be required to show the source of these funds by submitting full bank statements (all pages) for all accounts containing these funds. It will be easier if you consolidate all funds you plan to use for your down payment and closing costs in one bank account well before you apply for the mortgage.
Be aware of the total amount of cash you will need to close a mortgage. As a minimum, you will need the following funds to close the mortgage: down payment, six months property tax escrow, one full year of property insurance premiums and attorney fees.
Posted by: Dale Athanas, Loan Officer, Northeast Financial Mortgage, 860-876-0466
