Financial Resources: Mortgage

Statistics show that a vast majority of Americans downplay the critical importance of good credit. But having a poor credit history in this area of your life can be the biggest obstacle to home ownership or mortgage refinancing.

Having poor credit can seriously impact your life. Many consumers don’t realize the significance of good credit until it’s too late. Despite having a great job and a high income, you can-and probably will-be denied a mortgage if your payment history is sketchy. It can immediately block your path to home ownership. Even those with bad credit who aren’t rejected outright will likely pay higher rates. That can make a difference of tens of thousands of dollars over the life of a mortgage.

There are painless ways to avoid this hurdle. It begins with an understanding of how your credit rating works, and how it can affect your ability to borrow money.
Understanding your credit history
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Here are some of the factors that contribute to your credit profile:

* How long you’ve had credit, and how often you’ve borrowed and successfully paid back loans.
* If you’ve paid your bills in a timely manner, or if you’ve ever defaulted.
* How much credit you’ve been offered by stores, banks, or credit card companies, compared to the total amount you have used or now owe.
* Bankruptcy or foreclosure, even if they were caused by a spouse who may now be an ex-spouse.

Credit repair

To ensure that you qualify for the mortgage you want, there are simple steps you can take to bolster or preserve your credit rating:

* Order a copy of your credit report from one of the nation’s three major credit reporting bureaus (Expedia, Experian, TransUnion).
* Once you’ve examined the report, you’ll have the chance to provide corrections, challenge inaccurate entries, or record your own explanations. Your response will appear in the report when anyone requests it, so your side of the story will be told.
* Believe it or not, having no debt and no history of borrowing can be a problem. If you have no track record, creditors don’t know how to evaluate your performance. Borrow enough to build up a credit history, and do it responsibly.
* Avoid using all of your available credit. If your credit card limit is $2,000, for example, keep the card, but only use it to pay a monthly bill for $50 or $100. Pay off the whole balance before the due date each month. These small steps will help you climb the ladder to a higher rating.

Even if you have had trouble in the past, your current credit history has the potential to outweigh any past financial problems. Just start paying bills on time and following the other practices outlined above. Before long, you’ll have solid credit and can easily qualify for a mortgage loan.

When talking about loans, credit reference is also often talked about. Along with this is the credit reference agency. A credit reference company is mainly tasked to provide credit information on persons as requested by companies where the said persons have agreed to undergo a background check. The credit information often involves checking the history of the person’s ability to pay, previous or current loans, and history of delinquent debts. This is mainly to measure the ability of the individual to handle his or her financial obligations.

Even the subjected individuals can get hold of the credit report. This could help for them to improve their credit rating, since checking the report is an effective step in correcting the current problem.

In case there is no concrete information that could be considered credit references, the lender has always the option to have a nontraditional kind of credit report that would mainly reflect utility payments, rental payments and other financial obligations that are not reflected under the “traditional” credit report.

The lender basically has the option to tell you if the credit scores
were used in denying or approving the filed loan. In case the loan was denied, the lender can explain the reasons of the denial.

There are times, however, that credit reports are not that accurate. If you want to make sure that the information in your credit files are correct, you can frequently ask for copies of credit reports so you can do the necessary corrections whenever needed. Credit reference agencies normally charge only a small amount for credit reports.

Credit reference is important for almost every loan like mortgage loan. The credit reference often serves as a crucial factor for the lender to give money to the borrower. The credit reference many not always be as accurate as it can be, but it is generally accepted as a measure the ability of the borrower to pay his or her financial obligations. For instance, if you applied for a mortgage loan, the loan officer would assess the credit report, along with your loan application, that could give the lender an idea on your credit rating. Most lenders want to make deals only with individuals who can pay their bills on time. A borrower who often pays his or her bill beyond deadline seems to leave a negative impression to lenders. Most lenders could not completely trust borrowers who could not pay their simple bills on time. This is crucial since loans are bigger responsibilities.

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Contact Your Lender to Avoid Foreclosure

Many people avoid calling their lender when they have money troubles. Most of us are embarrassed to discuss our money problems with others or believe that if lenders know we are in trouble, they will rush to collection or foreclosure.

Foreclosure is expensive for lenders, mortgage insurers and investors. HUD/FHA, as well as private mortgage insurance companies and investors like Freddie Mac and Fannie Mae, require lenders to work aggressively with borrowers who are facing money problems.

Lenders have workout options to help you keep your home. However, these options work best when your loan is only one or two payments behind. The farther behind you are on your payments, the fewer options are available.

Do not assume that your mortage problem will quickly correct itself. Don’t lose valuable time by being overly optimistic. Contact your mortgage lender to discuss your circumstances as soon as you realize that you are unable to make your payments. While there is no guarantee that any particular relief will be given, most lenders are willing to explore every possible option.

Finding Your Lender

Check the following sources for lender contact information:
- Your monthly mortgage billing statement
- Your payment coupon book
- Search the web
- Directory assistance or phone book.

Information To Have Ready When You Call:

To help you, lenders typically need:

- Your loan account number
- A brief explanation of your circumstances
- Recent income documents such as pay stubs, Social Security benefits statements, disability, unemployment, retirement, or public assistance. If you are self-employed, have your tax returns or a year-to-date profit and loss statement from your business available for reference)
- List of household expenses

Expect to have more than one phone conversation with your lender. Typically, your lender will mail you a “loan workout” package. This package contains information, forms and instructions. If you want to be considered for assistance, you must complete the forms and return them to your lender quickly. The completed package will be reviewed before the lender talks about a solution with you.

Do Not Ignore Mail or Phone Calls From Your Lender

Your lender will try to contact you by mail and phone soon after you stop making payments. It is very important that you respond to the mail and the phone calls offering help. If your lender does not hear from you they will be required to start legal action leading to foreclosure. This will substantially increase the cost of bringing your loan current. Do not ignore contact from your lender.

If You Have an FHA Insured Loan

HUD’s National Servicing Center works closely with customers who have FHA insured loans. Check your mortgage document or ask your lender if your loan is FHA insured. Do you feel your lender is not responding to your questions? Do you want assistance contacting your lender? HUD’s National Servicing Center is ready to help you.