A new home can be the biggest purchase of any new homeowner’s life. While some may be able to shell out a full payment in cash, others will have to obtain a mortgage loan from a lender. When applying for a Los Angeles mortgage, brokers pay attention to positive credit history, among other things. While your overall score may make a difference, brokers need to look beyond the numbers.
Credit for a Mortgage Loan
Here are a few other things lenders will consider when reviewing your credit reports.
- Your recent applications. If you’ve recently applied for any forms of credit or debt, such as on a vehicle, lenders will look at whether you’ve made too many. A series of applications on new debt usually indicates that you might be in some financial trouble.
- Your payment history. Previous loans, credits, and debt on your credit report can dictate whether or not you qualify for a home loan. Having a positive track record of on-time payments can indicate that you will be a responsible mortgage borrower. Any late or missed payments will require you to provide an explanation to your lender.
- Your credit utilization record. A credit utilization record will define how much of your available credit is being used at any given time. If you’re using too much credit, you may appear overleveraged, so it’s common for lenders to prefer credit utilization that is under 30%. Lower ratios can also make a positive impact on your credit score and raise your approval chances. If your credit card has a $10,000 limit, for example, you won’t want to overload your balance past $3,000.
- Any evidence of bankruptcy. Any instances of bankruptcy, judgments, delinquent accounts, collections, or poorly settled accounts can raise a big red flag to lenders who may find it risky to approve a home loan.
- Whether you’re an authorized user for other accounts. As an authorized user on someone else’s credit card, the charges you make on this account will reflect on your credit. If the account is used responsibly, your credit ends up looking better. However, it’s important to note that using someone else’s account may not reflect positively on your lender and how they believe you can handle a mortgage loan.
- Your dispute statements. Dispute statements or pending disputes can reflect negatively and hold up your mortgage process from a logistical standpoint. Your best plan of action is to settle the dispute, if any, before applying for a mortgage loan. Remember, presenting a true view of your credit won’t put you at risk of clouding the picture.
- Your income. Perhaps the most important factor to consider when it comes to a home loan approval is your income. Remember that lenders prefer borrowers with a steady and predictable source of income and will likely assess your debt-to-income ratio.
Shannon Christenot for Los Angeles Home Loans
During the underwriting process of loans, remember that a good-looking credit report is what will win mortgage brokers over.