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To mortgage lenders, your credit info is going to be very important. While it may feel invasive, your mortgage credit reports will tell the banks whether or not they can trust you to repay them. They'll look for late payments, missed payments, bankruptcy filings, previous foreclosures, loans, total available credit, types of it, open accounts, closed accounts, collection accounts and pretty much everything financial you can think of, dating back 7-10 years. Low credit scores can be built back up through good behavior, but it may take 1-3 years for the worst offenders to be mortgage worthy again. Once you know your credit scores, you can work out any blemishes before home shopping. This should be done six months to a year before you plan on buying. If you have a score higher than 700, you needn't worry. If you're in the 500s or 600s, then try to pull your score up 100 points to get the best mortgage interest rates. There are five ways you can do this in six months time. First, you can reduce your credit card balances down to 30% of their limits. Secondly, you can cut your credit cards in half, but don't cancel your account because you'll lose points and increase the amount of available credit you're using up. Thirdly, it can boost your credit score to mix up your credit portfolio. A healthy portfolio may include three unsecured cards, as well as a form of secured credit, which is like a student loan, auto loan, home equity loan or installment loan. Lastly, you can negotiate with all of your creditors to remove late payments, which can improve your credit overnight. In addition to having healthy credit info and good credit scores, a prospective homeowner should work out a budget to see what kind of a monthly payment can realistically be afforded, given the monthly budget. As a general rule, borrowers can pay two-and-a-half times their annual salary. Lenders have traditionally calculated monthly payments using no more than 28% to 44% of your monthly income. For instance, you should not pay more than $800 toward all your debts if your monthly income is $2,000. You can also calculate your debt-to-income ratio by adding up all your monthly debts and dividing by your monthly income. If your debt-to-income ratio is under 20-30%, then congratulations, you are financially stable! Understanding how your credit info factors into your mortgage approval process is important. One of the biggest problems for many people is that they sell themselves short or feel they have limited options, even though there are many. Poor credit scores aren't the end of the world. Do not seek a sub-prime outlet if your credit is in the 500s; instead, try to work on your portfolio and be patient. Mike Selvon's portal will expand your knowledge on credit info and mortgages. Visit us and leave a comment at our credit score factors blog where a free gift awaits you.
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