The fourth and a very important factor a lender considers in evaluating
the borrower’s qualification for a loan involves creditworthiness. A
detailed examination of the borrower’s credit report will reveal certain information
about the borrower. The lender will order a residential mortgage credit
report form one of the major Credit Reporting Repositories. The credit
report is analyzed to determine the borrower’s pay habits, and past patterns
in meeting financial obligations. The borrower will be asked to provide
a statement explaining any credit derogatives.
No matter what your credit score might be, it likely makes sense to learn your score and than do what you can to boost your credit score prior to applying for your mortgage. In addition to a credit score determining your acceptance for a home loan, even when assured of obtaining a loan credit score may help establish rate and terms. Increasing your credit score may translate into many thousands of dollars in savings over the entire loan because of the interest savings from credit improvement. The editors of this course have compiled a consumer credit guide and credit improvement course for this purpose. The credit guide may be used by those with no credit at all to help establlish credit for the first time as well.
If a borrower has elected to pay cash and has no credit accounts, creditworthiness
can still be evaluated by demonstrating a willingness to pay in a timely manner
with “rent receipts” and “receipts for utility bills”, a form of silent credit.
Because a borrower has experienced credit difficulties in the past, due
to unforeseen circumstances, will not automatically signal a reject for a
loan. The borrower’s statement and reason for credit derogatives are
carefully evaluated before a final decision is made. Lenders
specializing in the "subprime" market prefer to make loans to customers
with poor credit because of the higher rates and fees.
Compensating Factors – Mortgage lenders, the secondary
market, and mortgage insurers are increasingly permitting compensating factors
which is a term that refers to a borrower’s circumstances that warrant more
flexible underwriting.
Commitment Letter – After your loan is approved, the lender
will send a commitment letter. This is a formal offer or loan commitment.
It will state the amount and terms of the loan. You will be given a
certain amount of time to accept the loan offer and close. You should
read and understand the commitment letter before signing. A counselor
from a housing counseling agency or an attorney can assist you if the terms
identified in the letter are unclear.
