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

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.

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.

Comment balloon 31 commentsBridget "Mortgage Mama" McGee • October 13 2011 10:06PM

Comments

Thanks for sharing, great blog!!!   

Posted by Yvonne Burdette-Van Camp, "Home"work, I have the Answers! (To Buy and Sell Real Estate, see me at Southwest Missouri Realty) almost 8 years ago

This is a very informative post and I have a client trying to get credit cleared up so she can purchase a home next spring.  I think this post will be very helpful.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 8 years ago

Great blog... credit matters more than ever!

Posted by Chandler Real Estate Liz Harris, MBA, #ChandlerRealEstateAgent (Liz Harris Realty) almost 8 years ago

Bridget,  Thanks for all the  very useful information regarding credit...and all the do's and don'ts.

Posted by Carlotta Remong (Berkshire Hathaway HS N.E. Prime Properties) almost 8 years ago

Bridget, this is great information, I am going to reblog to share with my readers.

Posted by June Piper-Brandon, Piecing Dreams One Home at a Time (Long & Foster Hampden) almost 8 years ago

Hi Bridget, I agree with the previous commenters, great advice. Especially the bringing old issues to the surface again is often overlooked!

Posted by Andrea Bedard, M.A.; REALTOR® Silver Spring, MD and beyond (Thompson Company, REALTORS®) almost 8 years ago

Great post Bridget!  The ability to pay is different than the willingness to pay.  I had never thought of it like that before.

Posted by Susan Mangigian, Chester & Delaware County Homes, Delaware and Ches (RE/MAX Preferred, West Chester, PA, RS152252A) almost 8 years ago

Yvonne,  Glad you stopped by.  Thanks!

Joan, Having a plan in place and sticking with it will help your borrowers to be home buyers not home dreamers!

Liz,  You are so right!

Carlotta,  There are some great books and websites out there about credit. I like Linda Ferrari's The Big Score and Dave Ramseys Money Makeover.  There is also great information on Gail Vaz-Oxlade's site on budgeting.  All important stuff.

June, Thanks for the re-blog. Educating folks is the key!

Andrea, There are still so many lenders telling people to pay off old collections.  Unfortunately, when you would think paying things off would look better to a creditor,  it can actually cause quite a negative hit to one's credit score.

Susan, You would be surprised at how many folks with great incomes and savings that I see that can't buy because they didn't pay those $20, $50, $200 bills before they went to collections!  Pay the folks you owe and pay them on time and you will be viewed as a good credit risk.  Don't pay (even $20) and you will have work to do.

Posted by Bridget "Mortgage Mama" McGee, Maryland Mortgage Mama NMLS#196068 (SWBC Mortgage 410-960-2061) almost 8 years ago

Excellent, Bridget.  This is great info to have for credit challenged clients.  Have a great weekend!!

Posted by Mike Cooper, GRI, Your Neighborhood Real Estate Sales Pro (Cornerstone Business Group Inc) almost 8 years ago

Bridget, good information! Good to know how credit scores are determined. Thanks.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA almost 8 years ago

Good information on the credit percentages! I am glad to see this written out.

Posted by Blatt + Cutino, Broker-Associate 831/206-8070*Call today* (Keller Williams Coastal Estates) almost 8 years ago

Good morning Bridget. Wonder in the future how all of these foreclosures will affect credit scores. There are so many out there you would think it would change the "normal" profile.

Posted by Randy Ostrander, Real Estate Broker, Serving Big Rapids and West Central MI (Lake and Lodge Realty LLC ) almost 8 years ago

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

Thanks!

Posted by Kat Palmiotti, The House Kat (Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com) almost 8 years ago

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!

Posted by Rob Spinosa, Vice President of Mortgage Lending, Marin County (Guaranteed Rate, Marin County, CA) almost 8 years ago

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

Posted by Kathy Sheehan, Senior Loan Officer (Bay Equity, LLC 770-634-4021) almost 8 years ago

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

Posted by Aaron Seekford, Ranked Top 1% Nationwide 703-836-6116 (Arlington Realty, Inc.) almost 8 years ago

Good morning Bridget,

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

 

Posted by Lisa Von Domek, ....Experience Isn't Expensive.... It's Priceless! (Lisa Von Domek Team) almost 8 years ago

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

Posted by Chuck Carstensen, Minnesota Real Estate Expert (RE/MAX Results) almost 8 years ago

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.

Posted by Anthony Daniels, SF Bay Area REO Specialist (Coldwell Banker) almost 8 years ago

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

Posted by Ellie McIntire, Luxury service in Howard County & Catonsville (Ellicott City Clarksville Howard County Maryland Real Estate) almost 8 years ago

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.

Posted by Shay Campbell, Raleigh, NC (Universal American Mortgage Company) almost 8 years ago

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. 

Posted by J. Philip Faranda, Broker-Owner (J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY) almost 8 years ago

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. 

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) almost 8 years ago
This isan excellent, easy to understand overview! I may have to share this with "certain" buyers. :)
Posted by Kerry Lucasse, Your Nest Atlanta Real Estate Consultant (eXp Realty - Nest Atlanta Team) almost 8 years ago

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

Posted by Sandy Acevedo, RE/MAX Masters, Inland Empire Homes for Sale (951-290-8588) almost 8 years ago

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

Posted by Robert L. Brown, Grand Rapids Real Estate Bellabay Realty, West Mic (www.mrbrownsellsgr.com) almost 8 years ago

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

Posted by Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES, Florida Waterfront and Country Club Living (Tropic Shores Realty - Ich spreche Deutsch!) almost 8 years ago

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

Posted by Nancy Timberlake, REALTOR - Southern Maine (RE/MAX Shoreline) almost 8 years ago

Hello Bridget,

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

Posted by James Loftis, RealEstate911.com (RealEstate911.com) almost 8 years ago

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.

Posted by Steven Cook (No Longer Processing Mortgages.) almost 8 years ago

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

Posted by Charles Stallions, 800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl. (Charles Stallions Real Estate Services ) almost 8 years ago

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