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Get Your Credit Score In Order Before Applying For A Mortgage
It can seem to be an unusual strategy to get a pre-approved mortgage first.
Most people first go about to find the house that they want to buy. And later look for a lender to offer them a mortgage loan without any in-principle approval. It is as if they fully expect a lender to grant them the quantum they want.
It is no wonder why many home buyers have a problem getting lenders to offer them a good deal – They cannot qualify for the type of loans that can be used to buy the house that they want.
And since a purchase has already been made, bankers know that you will be in a rush for time and have a deadline to beat for closing. That just removes whatever leverage you have left on your plate.
Real estate agents will undoubtedly insist that you need to find your house first. What they don’t say is that they want you to pay them a commission first.
When you are minding your own mortgage, you will find that a common misconception is that you need to own a house to obtain a loan for it.
That is not true.
You can actually secure a pre-approved mortgage before deciding which house to buy.
What you need really is to find out is what kind and which mortgages you qualify for even before you start looking for your dream house. This makes total common sense. Yet so many people don’t do it.
Assessing your pre-approval qualifications is based on your credit standing, your income, and your ability to meet what level of repayments. By going through credit assessment for example, you can end up obtaining a an offer to service 70% of a $250,000 house provided some conditions are met.
This effectively saves you a lot of time house hunting. You don’t have to go take a look at the “dream house” that your agent insist that you just have to take a look at because your personal budget simply don’t allow it.
However, if you have an adverse credit standing, you may only qualify for a much smaller pre-approved quantum with lower Loan-To-Value and higher interest rates. This will essentially change your house hunting strategy.
Do you now see the importance of finding a pre-approved loan first before buying or hunting for a house?
Locate the best mortgage deal that matches your qualifications.
Ideally, it should be one that allows you to free up lots of home equity with low monthly payments and little restrictions on redemption penalty.
You can also check out the internet. Some lenders and brokers can grant in-principle approvals online.
There is nothing more important than maintaining a good credit standing. You can have a great income with lots of personal assets. But if you have a poor credit standing, it is unlikely that you can get the best deals for yourself.
You will be found out and it is your cash balance that will suffer. You can be charged anything but the best mortgage interest rates and even a very low loan quantum.
Everyone has a credit report compiled somewhere if they have any legitimate credit cards or forms of legitimate loans. The report shows your payment history of these loans and credit facilities. This includes loans that you have not taken up but you ARE a guarantor for.
This means that if you are a guarantor for someone else’s loan and that someone else is making late payments, your credit standing will suffer as well.
The credit report is a pretty standard report.
However, different lenders will interpret the report differently. They will have different ways to score your credit giving you a credit score. A higher score will deem you as a good paymaster.
So that will mean that the lender, which could be a bank or financial institution, may be more flexible in granting you better terms for your home loan.
Needless to say, if your score is bursting off the charts, you would meet certain criteria for the best mortgage deals around.
If you think that your credit score has been unjustly unfavorable to you, I recommend that you challenge the credit reporting agency.
They are run by humans after all, and they do make mistakes. I’ve seen these discrepancies and rectifications happen in real life.
You can request for your broker to work with a credit repair company to repair your credit discrepancies on your behalf. These people will have the most relevant and specialized expertise to handle such situations.
I will give you an example of mitigation of credit repair.
You can get a late payment and arrears record in your credit report because of unpaid annual fees for your credit card. And these late payments are detrimental to your credit score. However from careful observation, you realize that the bank that issued that credit card in question had actually offered to waive your credit card annual fees. Simple human error, but it can have a significant impact on your credit score. Inform the credit reporting agency with the proof that the annual fees are supposed to be waived. Also call the issuing bank and insist that they rectify the negligent misrepresentation.
Most people don’t realise how important their credit behaviour history is when applying for a mortgage. From the example above, a simple misrepresentation can potentially cost you thousands of dollars due to higher interest rates, longer term, lower quantum, etc.
So go and get a pre-approved loan before you go house hunting. And build up your credit score before you apply for it.