6 Reasons Credit is Important in the Mortgage Process

Credit remains one of the most important things for your buyers and their quest for a home loan. Even though income and assets bear equal weight in the loan approval process, lenders consider creditworthiness as the most important because it indicates how your buyers manage their debts and hence their ability to repay a loan.

Here are some reasons why your buyers need to focus on their credit:

1. Credit scores, also known as FICO scores, are a major factor in the approval process. Lenders always have minimum credit score requirements. A credit score that is below a certain threshold will result in a rejected mortgage application.?

2. The entire financial history of a buyer is contained in the credit report. A lender has access to any judgments, bankruptcies, tax liens, collections foreclosures and all the credit history needed to determine the creditworthiness of the borrower.?

3. Buyers qualify for loan programs based on their credit. For a primary residence, Fannie Mae and Freddie Mac require a minimum score of 620 to qualify for the more popular conventional loan. A lower credit rating of 580 is allowed for qualifying for an FHA loan if there is at least 3.5% down. A score lower than 580 will require a higher down payment.

4. A strong credit score will make a big difference in how much interest is paid over the life of a loan. Interest rates that buyers pay will be dependent upon their credit scores. Even a small reduction in the rate will have a significant impact on the total interest paid on a 15- or 30-year loan.

5. A lot of debt affects the credit score of a buyer, even though that buyer may have a good income. Despite the fact that the debt may be paid in a timely fashion with no delinquencies, a lot of debt will push down the FICO score and may hinder qualifying for a good loan.?

6. The credit report reveals a buyer's ability to repay debts in a consistent manner over a long period of time. If there are some lags in debt repayment that can be explained due to special circumstances, a letter of explanation can be given to the lender for consideration. Often, the lender is able to still proceed with qualifying the buyer. If the borrower has had no lags in employment or explicable extenuating situations to account for not being able to pay recurring debt, then it will be a problem qualifying.

?Our society is credit driven, so having an in-depth understanding of how the credit process affects one's ability to obtain a good loan is important.?

?Your buyers will want to have all their bases covered before their loan package makes it to the underwriter.?

?The earlier they can get the approval process going, the better.?

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Call 800.773.6531 or email [email protected], and GenNEXT Funding can guide you and your clients through the steps from start to finish.