Credit Myth #3: A high credit score can make up for a low credit score

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit score.  Over the course of the next few weeks I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The third myth is that a high credit score in a joint loan application can make up for a low credit score.  The reality is, mortgage underwriters use the lower of the two applicants’ credit scores when evaluating a joint loan application.  It doesn’t matter if the higher credit score applicant has perfect credit or is only marginally higher.  The underwriter will use the lower of the two scores in determining if the application can be approved and in pricing the interest rate.

Sometimes it may be possible for the applicant with a higher credit score to qualify for a loan independent of the applicant with the lower credit score.  In that instance it may make sense to complete the loan application in the higher credit scorer’s name only.

Please contact me today to learn more about how your credit will impact your next home loan process.

Credit Myth #2: Having your credit report pulled will ruin your scores

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit score. Over the course of the next few weeks I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The second myth is that having a lender pull your credit report will ruin your credit score. It is true that credit inquires will reduce a consumers credit score. For each consumer the impact will be different, but for most the adverse effect is very small. In fact, according to THIS ARTCILE one credit inquiry will only reduce a person’s score by less than five points. Take a moment to watch this short video to learn about the special exception that applies to the mortgage industry pulling your credit:

Please contact me today to learn more about how your credit will impact your next home loan process.

Credit Myth #1: You have only one credit score

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit score.  Over the course of the next few weeks I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The first myth is that we all only have one credit score.  In fact, consumers have over 40 different credits scores which are determined by various algorithms that specific industries subscribe to.  Please watch this short video to learn more:

Want to learn more?  I found THIS ARTICLE in Forbes online which goes into greater detail.

Please contact me today to learn more about how your credit will impact your next home loan process.

Can a cosigner help me qualify for a mortgage?

I often get asked if a cosigner can help a person qualify for a mortgage.  As is often the case in the home loan industry my answer is “it depends”.

Cosigners and poor credit

Can a person use a cosigner to overcome low credit scores?  Unfortunately, the answer is no. That’s because a mortgage underwriter will default to the lower of the two credit scores in a joint mortgage application.

For example, let’s assume we receive an application from a homebuyer who has a credit score of 550 which is too low to qualify for a conventional loan.  If their parents, who happen to have excellent credit scores, submit an application as a cosigner it does not change the credit decision because the underwriter will still use the 550 credit score in evaluating the application.

When cosigners can help

Typically, cosigners are included with a loan application when a person does not have enough qualifying income to be approved for a loan.

Let’s assume we have a homebuyer who is in a new career and does not have sufficient history of earning their income according to underwriting guidelines.  In that instance they may ask a parent or sibling to cosign.  We can then measure the cosigner’s income and existing obligations and use additional cash-flow to help the homebuyer qualify.

Cosigners and down payment help

Regarding down payments, theoretically a cosigner can help with a down payment for a homebuyer.  However, most loan programs allow for gift funds from family so there’s really no reason to go through the trouble of having the family member cosign if they’re not required to.

Primary residence only

Cosigners can typically only be used on a loan that is connected to a primary residence, not for buying rental property.  Furthermore, most jumbo mortgage loan programs have restrictions against using cosigners even if the loan is being made on a primary residence.

Cosigners be aware

Cosigners need to know that they are going to be obligated on that mortgage and that the account will show on their credit record.  Regardless of any agreements between the homebuyer and cosigner if any party fails to make payments on the home loan and causes a default that negative credit information will appear on both party’s credit reports.

If you have questions about qualifying for a mortgage or using a cosigner for your own situation, I would love to be a resource. Contact me today for a no obligation conversation.

Multiple inquiries on credit are not as bad as you think

Often times our customers are hesitant to grant us permission to access a new credit report for them because of concerns that it will hurt their credit score.  The problem with not reviewing a client’s credit history and credit score is that we end up proposing mortgage options that may change once we do pull a credit report.  When we’re unable to deliver on our proposal it is not only frustrating for our clients but also ourselves because we try to take great care of our reputation.

 

I came across an article on Inman News by Dian Hymer in which she helps explain why for most people allowing multiple lenders to pull a credit report WILL NOT impact their credit score to the point where it will adversely impact the terms they are receiving on the loan.

 

Among her points that I like:

  • “The FICO credit-scoring model ignores all mortgage inquiries made within the last 30 days, so they will have no impact on your score.”
  • The number of new inquiries is counted towards the “new credit” factor in determining your credit score.  The “new credit” factor makes up ONLY 10% of the equation. 

 

You may view the article yourself by visiting this link.