Financing is Easier to Get, But Credit Repair May Still Be Necessary

Since the bottom dropped out of the housing market in the final few months of 2006 and helped kickstart the recession, lenders have been understandably cagey about granting mortgages to most consumers. However, with the economy beginning to show serious momentum and more Americans in better financial positions, many consumers may find that they can afford a home purchase again. Some, however, will find they need to do some credit repair work to achieve their goals.

Many types of credit became tougher to get in the immediate wake of the recession, as lenders were driven to more conservative standards by massive surges in instances of delinquency and default when millions fell behind on their bills. And as the economy has continually improved, these types of accounts have once again become easier to acquire; credit cards were the first to have restrictions on them once again loosened, and auto loans weren’t far behind. Other types of credit have come along as well, to varying degrees, but one type of financing that has remained notably tight is mortgages. While it makes sense that lenders would want to be extremely cautious in granting this type of financing in particular, given the size of the loans and monthly payments involved, and the resulting risk that comes with it, some experts say lenders have kept too tight a grip on the purse strings for home loans.

But now, some lenders seem to be starting to slacken these qualifications for the first time in years, according to a report from syndicated real estate columnist Ken Harney. However, just because they’re a little looser, that doesn’t mean they’re actually loose; given how much lenders reined in this kind of financing in recent years, even substantial slackening would still require that most consumers have some fairly high credit scores in order to qualify for a mortgage. Some experts even say that this relative ease in finding a home loan might be a little bit overblown, and may revolve more around financial details related to but not necessarily a part of credit scores themselves, such no longer requiring down payments in excess of 20 percent or more. For these reasons, you’ll almost certainly need to do more to shore up your ratings, even if you are generally considered to have generally good credit. That just might not be enough.

Where should you start?

The thing to keep in mind when you’re in the market for a home loan is that it’s not just your credit score being considered by lenders, as it might be when you apply for a credit card or auto loan. Instead, lenders will look at far more aspects of your financing to make sure you’re a worthy investment. Consequently, there is one area you might want to clear up first that will both tremendously boost your credit scores and also make you a more attractive homebuyer: Your debt. The more money you owe, the lower your credit score will be, and you will also simultaneously increase what lenders call your “debt to income ratio.”

Essentially, whatever you have to pay out to cover all your credit-related costs every month as a percentage of what you take in is one of the most important aspects of your ability to qualify for a mortgage. Likewise, if you have a lot of debt on your credit cards, taking up more than about 30 percent of your total limits, your credit score will start to decline, and you will therefore be less likely to qualify for that reason as well. This factor, known as “credit utilization ratio” makes up a full 30 percent of your total credit score.

Thus, the best thing you can do to increase your chances of qualifying for a mortgage is start cutting into your debt as quickly and heavily as possible, through larger monthly payments and a curtailing of spending on the accounts in question. The less debt you take into the application process, the higher your scores will be and the more likely to be approved you will become.

Is there anything else?

Of course, during this time you should also try to make sure you’re not missing any payments, and haven’t for the previous several months at least. Payment history actually makes up the largest portion of your scores at 35 percent, and thus maintaining a healthy schedule of sending in all your bills every month.

Finally, you may also want to take the time to look over your credit reports, as these documents can sometimes contain unfair markings that might be dragging down your scores. If so, contacting a credit repair company about the issue may help you to get the problems sorted out as quickly as possible to return your standing to where it deserves to be.

Posted in Credit Repair
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