Do you think
you have bad credit that prevents you from
mortgage financing and buying your dream home?
You're not alone. many people dream about
buying a home of their own and think their bad
credit prevents them from financing a mortgage.
The good news is that you can buy a home to live
in with easy mortgage financing because lenders
know you must pay to live somewhere.
However, you can save thousands on mortgage
costs and perhaps buy a more expensive home if you
improve your credit. The following article can
help you change your credit from "bad" to "good."
Common Credit Mistakes that Lower Scores and
Look "Bad" to Lenders
By Jeanette Joy Fisher
If you plan to finance real estate, either as a
home buyer or an investor, avoiding these common
credit mistakes will help you with your credit
score and save you money in loan costs.
1. Using expensive or undesirable types of credit
costs too much and is negatively scored, Mortgage
lenders often scrutinize the type of credit used.
2. Accumulating too many lines of credit or too
many credit cards causes credit report remarks
like "too much consumer credit."
3. Only paying the minimum due and maintaining
high balances.
4. Maxing out credit cards or lines of credit
causes deep drops in scores.
5. Taking cash advances costs higher interest and
extra fees. These extra charges accumulate and
keep balances too high.
6. Exceeding limit and paying over-limit fees
causes negative "high proportional amounts owed"
remarks on credit reports and subtracts credit
score points.
7. Paying a day or more late causes unnecessary
late fees and often increases interest rates.
8. Charging more than you can afford causes a
snowball effect of amassing debt with no easy way
to pay it off.
9. Letting someone else use your credit, such as
co-signing a loan, raises your debt-to-income
ratio and possibly adds "too many consumer
accounts" on your credit report, which lowers your
score.
10. Ignoring credit problems causes unnecessary
negative impact. Talk to creditors before being
late and make arrangements. This action heads off
negative reporting to credit bureaus.
11. Failure to report address changes to creditors
causes misplaced bills and late payments.
12. Using partial name, different names, initials
instead of whole name, or forgetting Sr. or Jr.
causes mix-ups. Use your full legal name to
protect you from confusion with similarly named
borrowers.
13. Failure to report name changes to creditors
also causes confusion.
14. Not checking credit report frequently is one
of the most common mistakes consumers make.
Bad Credit Home
Mortgage Financing
You can buy real estate with poor credit, but you
will save thousands in loan costs if you maintain
good credit. A bad credit report leaves home
buyers with nonprime loans which cost more money
because of:
- higher point charges
- prepayment penalties
- higher interest charges
For instance, a mortgage
loan of $150,000, 30-year, fixed interest rate of
about 5.72 percent costs around $870 a month. Poor
credit scores raise the interest rate over 9
percent and the payments over $1,200.
As you see from these payment differences, good
credit means that you can finance a more expensive
house with the same income, or save $330 each
month.
Credit Requirements for Mortgages
Credit needed to buy real estate is not the same
as good credit. Besides your credit score,
mortgage lenders consider your debt-to-income
ratio and other credit matters, unlike other
credit grantors. Your debt-to-income ratio is the
comparison of mortgage payment, including taxes,
interest, and insurance to your total gross
monthly income. Real estate lenders also consider
your employment qualifications and your overall
debt ratios.
Avoiding credit mistakes
helps you get strong credit and keeps your credit
scores up. Understanding the difference between
good credit and the credit needed to obtain real
estate financing helps you buy your dream home!
Copyright © 2006 Jeanette J. Fisher
Jeanette Fisher offers free ebook, Credit Tips
for Mortgage Financing, at
Real Estate
Credit Help.
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