Prequalifying Your Credit for a Mortgage Loan Approval

As mentioned, your mortgage loan prequalification actually revolves around prequalifying four elements:

• Property
• Assets
• Credit
• Income & Employment

This sub-section provides a quick overview of personal credit issues that are considered during the mortgage loan application and approval process.

Your Credit Record

Your credit rating will demonstrate your willingness to repay your debts by providing your history of bill payments for the past seven t -ten years.  Most consumer accounts will stay on your report for only seven years; bankruptcies and most other judgments will stay on your credit report for up to ten years.

When analyzing your credit report, lenders first look at your credit score.

Then they examine your credit history for current delinquencies and past late payments.  However, only late payments of at least 30 days are considered.  So you need not worry about any payments that may have arrived at your creditor up to 29 days late.

The following matrix provides an approximate breakdown of what constitutes A-credit, B-credit, C-credit and D-credit.  Again, remember that these are only guidelines, which are always changing to the needs of the market.

As you can see, most mortgage lenders differentiate between the different types of credit accounts—with obvious priority on mortgage accounts—and with an eye toward the most recent 12-24 months:

• Mortgage accounts. Mortgage history indicates how cautious a borrower is about their most important investment.  For first-time homebuyers, verification of rent payment history is typically substituted.  A strong A-grade credit seeks a current account with no more than one (preferably no) late payments during the past two years.
• Installment accounts. Car, student and personal loans with relatively fixed monthly payments are the most common types of installment accounts.  Such entries are most similar in nature to mortgage loans, which are essentially a form of installment loans.
• Revolving credit. Credit cards are the most common type of revolving accounts, so called because the balance (and subsequently calculated payments) are changing or “revolving” each month.
• Collections, charge-offs and judgments. Such accounts are very damaging and must be paid off immediately.  Note, however, that certain accounts—such as medical disputes and crises caused by events beyond the borrower’s control—are often forgivable, but must still be paid off immediately.
• Repossessions, bankruptcies & foreclosures. Such items are more serious for they are major items (like the mortgage) from which the borrower has essentially walked away.  Fortunately, as with love, time heals all wounds.  It just takes a lot of time.

If your credit has gone through some rough patches, you can get tips for repairing damaged credit and improving credit scores at www.creditrehab411.com.

Credit Grading Matrix

In the following matrix, one late payment refers to a 30-day late payment. A 60-day late payment counts as two 30-day lates.

	A+	A	B	C	D/F
Score	720+	660-719	580-660	500-579	<500
Mortgage lates last 12 months	0	<1	<4	<6	>6
Mortgage lates last 24 months	0	<2	<4	<8	>8
Installment lates last 12 months	0	<2	<5	<9	>9
Installment lates last 24 months	0-1	<3	<6	<12	>12
Revolving lates last 12 months	0-1	<3	<6	<12	>12
Revolving lates last 24 months	0-2	<4	<8	<12	>12
Collections last 12 months	0	<500 (paid)	<$1,000 (paid)	>$1,000	>$5,000
Collections last 24 months	0	<$1,000 (paid)	<$2,000 (paid)	>$2,000	>$5,000
Charge-off/Judgment 24 months	0	<$1,000 (paid)	<$2,000 (paid)	>$2,000	>$5,000
Repossessions	>7 yrs	>5 yrs	>2 yrs	1-2 yrs	<6 mos
Bankruptcy	>10 yrs	>5 yrs	>3 yrs	<2 yrs	<6 mos
Foreclosure	>10 yrs	>7 yrs	>5 yrs	<3 yrs	<6 mos

Again, please note that mortgage lenders have slightly differing credit requirements.

This is just a guideline. As mentioned above, you can also get detailed instructions for repairing damaged credit and improving credit scores at www.creditrehab411.com.