Curious about credit scores? Need to know what documents will be requested when you apply for a loan? Below you will find useful information that will help get you ready for the loan process! Have more questions? give us a call! We’re happy to help you.
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Copies of your driver’s license and social security
One month current paystubs
Last two years W2s
Last two years Federal Tax Returns
Two months current bank statements (all pages)
Retirement or investment statements to cover the most recent two months (all pages)
Certificate of Eligibility
DD214 (Discharge Papers)
Current mortgage information
Current homeowner’s insurance
Property tax statement
HOA statement (if applicable)
Landlord’s Name, address, and phone number
Child Support documentation
Bankruptcy Filing and Discharge
Letter of Explanation
Documentation (copies of checks)
Letter of Explanation
Profit and Loss statement
Business License, if applicable
Last two years of Corporate Tax Returns
Credit is an important factor when it comes to buying a home. Mortgage companies run a tri-merge report pulling information from Experian, Equifax, and TransUnion. A mortgage credit report uses a different algorithm than say, a car loan credit report. So what is a good credit score? Let’s see first what makes up your credit score.
Credit Score Makeup
Credit history: Make your payments on time, even if you are making the minimum payments. A missed or late payment can lower your score by 80 to 120 points.
Credit utilization: Keep your balances low, generally between 20-25% of the high credit. Lenders calculate your debt to income ratio by comparing your spending habits (monthly obligations) to your earnings.
Length of credit history: Keep those credit cards you have had the longest open, whether you are using them or not. Once the account is closed, the history is lost.
Credit mix: Have multiple types of credit such a revolving accounts (credit cards), mortgages, installment loans (vehicles), etc.
Applying for new credit: A lot of new credit in a short period of time looks like you are desperate for credit and potentially a higher risk.
To ensure the best terms for your loan, a credit score of 740 or better is ideal; however, the minimum score for all loan programs is lower.
So, what steps can you take to improve your score?
Shop for rates for a specific loan within a short period of time
Pay your bills on time, even if it is just the minimum payment
Pay off debt rather than moving it around
Review your credit annually with the three bureaus
Do not close accounts as a strategy to raise your score; it often does not help
Monitor joint and co-signed accounts
Apply and open new accounts only as needed
Keep balances low on revolving accounts and credit cards
*Note: American Pacific Mortgage Corporation is not a credit repair company; this information is for information purposes only. We are not licensed credit repair specialists or counselors.
Wait times before you can finance a property
If you've experienced a credit event - such as a foreclosure, bankruptcy, or short sale - you may be able to finance a home purchase sooner than expected. Here are some general waiting period guidelines for common situations:
* Written permission from the bankruptcy court/trustee is required.
** 12 months payments and bankruptcy court approval may be required
Interest Rates VS APR
Often times consumers see the APR and think, “That was not the rate they gave me.” And they are correct. The APR is actually the cost of the loan over the life of the loan. What that means is that it takes into account the interest rate, closing costs, and mortgage insurance (if applicable), then expresses it as a percentage over the term of the loan.
Closing costs are fees incurred during a real estate transaction and paid at the time of closing. Closing costs include, but are not limited to, escrow and title fees, loan origination charges, points, appraisals and inspections, pre-paid and pro-rated items, etc.
Mortgage Insurance and Funding Fee
Mortgage insurance is required on FHA and Conventional loans with less than 20% down payment. Mortgage insurance is designed to protect the lender in the event of default.
FHA loans are insured by the Government and require an upfront mortgage insurance premium (UFMIP) as well as monthly mortgage insurance (MMI). Depending on how much you put down and your credit, the MMI rate may change.
Private mortgage insurance (PMI) is required on conventional loans and there are a few options that will affect your monthly payment in different ways. Two of the more popular options are lender paid mortgage insurance (LPMI) and borrower paid mortgage insurance (BPMI). With lender paid mortgage insurance, the lender buys out the mortgage insurance at the beginning of the loan, resulting in no monthly fees. Borrower paid mortgage insurance can be bought out at the beginning of the loan or paid monthly.
VA loans are guaranteed by the Department of Veteran Affairs and require a funding fee at the beginning of the loan. Some veterans may be exempt from paying the funding fee, which would be reflected on their Certificate of Eligibility.