Mortgages-Before You Apply, Check Yourself Out

 

Title: Mortgages-Before You Apply, Check Yourself Out

Author: Frank Bruno

Article:
You might have heard about the term "subprime mortgage." It's a
term that people throw around to describe lenders who approve
those with poor credit. Many people whose credit is less than
perfect automatically resign themselves to applying with these
subprime mortgage companies. They think it's the only way to be
able to get a mortgage approval. Before doing so, however, you
might want to think twice.

It's true that subprime borrowers typically are people with
challenged credit. However, credit is not the only criterion to
be classified as subprime. Although guidelines will vary by
lender, you might be a subprime borrower if:

· You have a foreclosure on your credit report. · You filed for
bankruptcy, and it has not been two years since it's been
discharged. · You have excessive late payments (60 days to 120
days and up). · You're enrolled in CCCS or an equivalent
non-profit credit counseling service. · Your income is primarily
paid with cash or personal checks. · You have very little equity
in your home. · You have a very high (above 40%) debt-to-income
ratio. · You are self-employed and have sporadic or
difficult-to-verify income. · Your home values are extremely low
(under $25,000). · Your credit score is below 620.

Notice that not every guideline is credit-related. A subprime
borrower can have absolutely perfect credit, but if he or she
works as a housekeeper that is paid with cash, it's quite
possible that subprime guidelines would apply.

Even if your situation matches one of the above, there is always
room for interpretation. For example, you might have discharged
your Chapter 7 Bankruptcy two years ago. IF you have at least
three accounts on your credit report that you've been paying
perfectly for the two years since your discharge, you might
qualify for a conventional mortgage. This is especially true if
you've been paying your rent or mortgage on time, every time.

How can you avoid having to apply with a subprime mortgage
company?

The very first step you MUST take is to obtain a copy of your
credit report, along with your credit scores. Get a copy from
each of the three major credit reporting bureaus: Equifax,
Experian, and TransUnion. Each credit bureau maintains its own
profile of your credit. They are completely independent of each
other, and they do not share or swap information among
themselves. You will therefore find that your three credit
scores will be different.

Many mortgage companies, both subprime and conventional, will
base their lending decision on the middle of your three credit
scores. For example, your scores might be 588, 612, and 638.
Your middle score is 612, as scored by TransUnion, for example.
This is below the 620 score that many lenders use as a cutoff to
qualify you for the preferred mortgage products. Now you might
be wondering why you wouldn't meet that 620 guideline since one
of your scores is 638. In this case, because 638 is your highest
score, it is, in effect, disregarded.

Now that you know that you need to raise that 612 to at least
620, you can map out a strategy that focuses on your TransUnion
credit report. Although you should try to fix all three credit
reports concurrently, your TransUnion report will likely get you
above 620 the fastest.

It's not as important to try to raise the 638 (although you
should try anyway). Even if 638 skyrockets to 700, your middle
score will still be 612.

Your individual situation will vary. Your middle credit score
might be from any of the three credit reporting agencies, not
just TransUnion, so keep that in mind.

Be aware that credit score is not the only thing you need to
worry about. People have qualified for FHA mortgages with scores
as low as 580. You must look at the entirety of your situation,
including income, assets, equity, job stability, etc.

Just because you've had a late payment, a collection, or even a
bankruptcy on your record, do not automatically assume that
you're a subprime borrower. Also, don't rely on the mortgage
company to tell you whether you're a subprime borrower. Know
your own credit situation first. You might just find yourself
qualifying for the very same mortgages as people with perfect
credit.

About the author:
Frank Bruno has spent the last 3 years assisting hundreds of
clients in saving thousands of dollars in Interest rates by
teaching them unique techniques on how to quickly and
dramatically raise their credit scores. For more information
please visit his website- http://www.CreditScoreBooster.com