I am ready to buy a house, does recent credit matter? An open letter to credit challenged borrowers.

By
Mortgage and Lending with Corridor Mortgage Group 410-960-2061 NMLS 196068

I am ready to buy a house, does recent credit matter? An open letter to credit challenged borrowers.

 

When looking at a mortgage applicant, lenders look for two things:

 

1.       The ability to repay

2.       The willingness to repay


You have the ability to repay.  You have a good income, you have even saved money for the down payment and closing costs.  Unfortunately, your recent history is still not showing the willingness to repay.  I realize that you have recently paid many of these items in full. Unfortunately, even paid in full collections affect your credit scores. 

 

PLEASE DO NOT PAY OFF OLD COLLECTIONS, you will bring old negative credit challenges that is not affecting your credit score to current negative (Yep, even if it is paid off!) credit, potentially lowering your credit score 

 

In order to continue on the path to a better credit score, you will need to:

·         Continue to pay down credit cards-goal is to be no more than 35% of available credit

·         pay all bills on time. 

·         not allow any new bills to go to collections

·         If the majority of your credit is closed or in collections it will be important to establish good credit lines-check with your credit union or bank to see if they offer a secured credit card that reports to the bureaus.  You can also check with Orchard Bank.


Credit scores are based on the following:

1.     Payment history: 35 percent of the total credit score is based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores.

2.    Debt amounts: 30 percent of the total credit score is based on a borrower's total outstanding debt

3.    Length of credit history: 15 percent of the total credit score is based on the length of time each account has been open and the length of time since the account's most recent action.

4.    And 5.  New credit and credit mix: Each comprise 10 percent of the total credit score. Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots ofcredit.

If you have had credit challenges in the past, with desire and work you can buy a home.  It might not be today, it might not be in a month, but you can get there.  Make a plan and stick with it!  If you need help in Maryland, call me. If you need help elsewhere, let me know, I can probably help you find a great lender wherever you are!

I am ready to buy a house, does recent credit matter? An open letter to credit challenged borrowers.

Posted by

Warm Regards,

Bridget McGee  Maryland Mortgage Mama  NMLS# 196068  Corridor Mortgage Group.   410-960-2061 EHO   bmcgee@corridormtg.com or marylandmortgagemama@gmail.com

 

If you are considering purchasing a home in Maryland and want to be sure you are mortgage ready, my brother Tony and I will be happy to help! We help to make the mortgage process a pleasure! 

If you already own your home, we are happy to provide a no-cost mortgage review to help you to determine if refinancing may be in your best interest.  Please contact me at 410-960-2061.

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. June Piper-Brandon 10/13/2011 11:57 PM
  2. Charles Stallions 10/15/2011 06:42 AM
  3. Lenn Harley 10/15/2011 07:14 AM
  4. Angelica Blatt 10/15/2011 08:33 AM
  5. Ellie McIntire 10/15/2011 12:44 PM
  6. Yvonne Burdette-Van Camp 10/16/2011 10:32 PM
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Location:
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Tags:
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Rainmaker
355,461
Kat Palmiotti
Better Homes & Gardens Rand Realty, Monroe NY Real Estate, 914-419-0270 - Monroe, NY
The House Kat

Great information regarding credit scores - I wasn't aware of the % mix (payment history, debt amounts, etc), so that was very useful.

Thanks!

Oct 15, 2011 08:58 AM #13
Rainmaker
262,356
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

Great post, and can't be said enough.  Unfortunately, when it comes to credit, myths still prevail out there and many make hasty and counterproductive changes when it comes to FICO scores.  Hopefullly your post will prevent even a small bit of that.  Thank you!

Oct 15, 2011 09:00 AM #14
Rainmaker
565,601
Kathy Sheehan
Movement Mortgage 770-634-4021 - Atlanta, GA
Branch Manager

I have lost count of how many times I have had this conversation with prospective home buyers.

Oct 15, 2011 09:15 AM #15
Rainmaker
150,883
Aaron Seekford
Arlington Realty, Inc. - Arlington, VA
Arlington VA Homes 703-836-6116

Great tips, Bridget. Credit scores can be a huge burden on new buyers--hopefully these tips help them up their preparation!

Oct 15, 2011 09:29 AM #16
Rainmaker
1,139,553
Lisa Von Domek
Lisa Von Domek & Associates LLC, Real Estate Broker/Associate with Real Living Real Estate Group www.LisaVon.com - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Good morning Bridget,

Great, important consumer information...thanks for sharing!

 

Oct 15, 2011 10:03 AM #17
Rainmaker
733,039
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota Real Estate Expert

Why is the paying off of past due debts always a mixed bag where some pay and others say dont pay?

Oct 15, 2011 10:17 AM #18
Rainer
157,536
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

With the housing mess and financial crisis, I'm willing to bet that FICO will need to adjust their scoring criteria by lowering the bar............quite a bit.

Oct 15, 2011 10:21 AM #19
Ambassador
1,082,341
Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
CDPE, Howard County Homes for Sale

Great information Bridget. The will and the want in perfect harmony.

Oct 15, 2011 12:39 PM #20
Rainer
229,200
Shay Campbell
Universal American Mortgage Company - Raleigh, NC
Raleigh, NC

Bridget I could not agree with you more.  I am currently working with someone who just recently paid off old collections.  She was told to do this by another lender, who said it would help her FICO score.  It did not.  You are doing a good job educating REALTORs and borrowers.

Oct 15, 2011 12:47 PM #21
Ambassador
1,278,995
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

How old is "old?" At what point should you NOT pay something?

Oct 15, 2011 01:39 PM #22
Rainmaker
851,428
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Balance and % of credit used is seldom on the regular guy's radar- too many people think they have good credit if they are maxed out to the gills so long as they make their payments. 

Oct 15, 2011 02:30 PM #23
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Bridget - It's so disheartening to have to explain to prospective borrowers who just paid off a bunch of old bills thinking that would help their chances in getting a loan that they have actually just made things worse.  At that point, it's simply have to wait now to get their scores back up.

On another note, paying off recent collections is a good thing.  It's amazing the number of reports I see for prospective borrowers with recent collections (less than 6mon) on them. 

Oct 15, 2011 02:36 PM #24
Rainmaker
378,132
Kerry Lucasse
eXp Realty - Nest Atlanta Team - Atlanta, GA
Your Nest Atlanta Real Estate Consultant
This isan excellent, easy to understand overview! I may have to share this with "certain" buyers. :)
Oct 15, 2011 04:11 PM #25
Rainmaker
313,710
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

This is great information to have and gets down to the details. Nice job!               

Oct 15, 2011 04:53 PM #26
Rainmaker
478,165
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Michigan

These are ne brainer points but there are folks who need a friendly reminder from time to time.

Oct 15, 2011 08:56 PM #27
Ambassador
1,317,437
Silvia Dukes PA, REALTOR
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Bridget, nice break down to help people understand the credit score components.  There are many people who have never even heard this informaiton before.

Oct 15, 2011 09:00 PM #28
Rainer
292,563
Nancy Timberlake
RE/MAX By The Bay - Portland, ME
REALTOR - Southern Maine

Thanks for credit info.  Clients need to be clear about what to pay off as they can get it wrong and do further damage.

Oct 16, 2011 09:01 AM #29
Rainer
218,798
James Loftis
Real Estate 911 Inc - Hollywood, FL
Real Estate 911 Inc

Hello Bridget,

  Good basic information that all of us should  know. Thanks for sharing with us.

Oct 16, 2011 08:54 PM #30
Rainer
277,285
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA
- Pierce, King, Kitsap, Thurston, Mason Counties

Bridget -- Thanks for helping others understand this important topic.  We usually tell people that collections over 3 years should not be worried about, until after we have fixed other things -- and over 5 years, don't touch them.  You have explained the reasoning on the situation well.

Oct 17, 2011 03:28 PM #31
Rainmaker
1,406,354
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Very goo post I was tol by my first banker "the ability to repay" and " the willingness to repay" was his criteria

Oct 18, 2011 07:50 AM #32
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Rainmaker
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Bridget McGee

Maryland Mortgage Mama NMLS#196068
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