2.6.2 Credit and Qualifying
The quality of your credit history is probably the most important factor in determining what mortgage loan programs you will qualify for. The amount of money that you’ll qualify to borrow is largely a function of your income. If you have limited cash assets available, you’ll either have to explore the various assistance programs that are available or qualify for a high “loan to value” loan, borrowing 97% to 100% of the home’s value.
If you have adequate cash, there are loans available no matter how bad your credit is. But you’re not going to like the terms if your credit is bad. We had a client several years ago whose credit was a disaster. A great loan officer found him a loan, but it was an adjustable rate mortgage (ARM) (see Types of Loans) with an initial interest rate of 13%.
If your credit is outstanding, you may qualify for a 100% mortgage loan. You may also qualify for better interest rates with certain loan programs. In addition to reviewing a report of your credit history, lenders have been using a credit score to qualify buyers for certain loan programs. There are three credit bureaus in the U.S. They are:
Colorado residents should be able to obtain their credit report and score from any or all of these bureaus for free. Residents of other states may have to pay a small fee. When lenders review your credit, they use what is called a “merged report,” a report that combines the data from all three credit bureaus. You can obtain a similar report from MyFico for under $50.