Selling Charlottesville real estate in Central Virginia since 1927
How to qualify for a mortgage
Lenders today use a very straightforward process for determining whether or not a buyer qualifies for a home mortgage. Thanks to a method called "credit scoring," the chances of qualifying for a mortgage have been enhanced.
Credit scoring, which has long been used in the consumer lending and credit card areas, is now part of the process used by lending institutions to evaluate applicants for mortgage loans. Based on the data available in the borrower's credit report, the score indicates the borrower's willingness to repay a home loan and measures the relative degree of risk a potential borrower represents to the lender. There are a number of items which are considered in credit scoring. These items include past delinquencies, payment history, current level of indebtedness, length of credit history and type of credit used.
Industry experts are finding that credit scoring may actually be helping more buyers obtain financing for their homes. Surveys by the federal government's Fannie Mae program, for example, have found that income level doesn't necessarily correlate to a high credit score. In many cases, they found that buyers with low to moderate incomes frequently have much higher credit scores than those with high incomes. They've also found that those with a high credit score but who can afford only a small down payment are less likely to default than those with a low credit score who make a high down payment.
Credit scoring is just one part of the mortgage approval process. Lenders also take into consideration the length of current home ownership, length of employment, monthly income, ability to save, loan-to-value ratios, debt-to-income ratios and length of occupancy in your current home. These are all a part of the process included in "mortgage scoring," a process that lenders use to determine the risk involved in issuing a mortgage.
So, now you have an idea of what lenders are looking for in their mortgage loan applications. Are there means by which you can increase your "score"? Absolutely. Avoid making late payment on credit accounts. Try to keep your credit purchases low and, whenever possible, pay off the balance each month. If you have items on your credit report that could reflect negatively on your ability to secure a mortgage, be prepared to explain each matter in writing. Also consider putting off any major purchases (such as a car, appliances, etc.) until after you've moved into your new home.
This process is a lot less daunting that it first appears. Your Charlottesville real estate agent at Roy Wheeler Realty Co. will help you absorb all of this information and keep it all in perspective.
More information about mortgage resources:
- Financial tips for buying a home
- How to qualify for a mortgage
- Home affordability estimate
- Mortgage lender web links
