What You Really Need to Know Before Applying for a Mortgage Loan

So you're finally ready to buy a home and you've been saving up a healthy down payment and looking for that perfect home to buy. Think you're covered? Well, just barely. There are a number of factors that will determine if you're a borrower that is going to get a good rate or a great rate on your mortgage loan and every percentage point is real money coming out of your pocket.

One of the first things you need to check is your credit report. When you apply for a mortgage loan, your lender will check your personal credit report of both yourself and your co-borrower (the person, if any, that you're applying for the mortgage loan with). There are three major credit bureaus; Equifax, Transunion and Experian. All three of these credit bureaus are competitors and do not share information, additionally the personal information they have for you may differ slightly as not all creditors report to all three bureaus.

The main items that will cause you to get a dismal percentage rate on your mortgage loan are collection accounts or accounts that are currently past due. You'll have to take care of them before your mortgage loan will be approved as underwriters look at it as, if you went past due on a credit card account that only had a $40 a month minimum payment, how will you meet a mortgage loan payment obligation? Accounts with late payments over 30 days that have occurred in the past twelve to twenty-four months will also get you a worse interest rate in many cases.

Items that will stop your mortgage loan in your tracks are public records such as a tax lien that isn't paid, bankruptcies that are not discharged, unpaid judgments can also stop your loan process until you clear up the balance. Unpaid student loans will also halt your loan process until you pay them. Generally speaking, all of these things will have to be resolved so your mortgage loan application can proceed further. Ways this can be done are to make payment arrangements attempt to get the lien or judgment paid off as quickly as possible; get a loan to consolidate your problem account or accounts and pay it off to the lending party in installments and this is usually a good option as most relatives will lend you money at low to no interest. Your last option is to simply wait and save until you can pay off your problem accounts and then apply for your mortgage loan. Certain public records such as student loans are not going to go away after seven years, and according to the U.S. Department of Education, they normally attempt collection on defaulted student loans for up to 25 years. One other way to get a student loan off your credit report is called "Rehabilitation" of the student loan. It basically means you get a chance to set things right. You write the creditor, ask to rehabilitate a loan. Upon acceptance, you will need to make at least nine and usually around twelve on time monthly payments in a row. Your loan will sold to a new lender and the default will be removed from your credit report.

It is possible to clear these items up on your own and get your mortgage loan. For past due accounts and collection account; simply call your creditors and speak to a manager and offer to pay the account. If the item is a collection account, ask first if you can pay it off in exchange for deletion from your credit report. They are under no obligation to help you, however many will do it out of "good faith". For past due accounts, offer to pay the past due and play your "long time customer" card if possible and state you've been a customer for a long time and you've always paid on time and ask if the credit can forgive this past due as you're trying to get a mortgage loan. You'd be amazed at goodwill many creditors will show if you simply ask. Once again, they don't have to do so and don't get rude if they refuse, remember you're the one asking for the favor. If someone agrees to help you, ask for their name and extension - you may need that information again and also a letter will help but isn't mandatory. Then, send that information on the accounts you've paid or had corrected to the applicable credit bureaus and get your file updated. It will save you a lot of foot work before once you apply for your mortgage loan.

Other issues that will be important and help you get a great rate include having a steady job for a minimum of twenty-four months and a verifiable residence for that same amount of time. The person that will be approving your mortgage loan, the underwriter, doesn't know you or anything about you besides what he or she sees on your mortgage loan application. Make sure your credit report reflects your responsibility in paying your bills and if you have some hiccups such as late payments, tie them into a time when you moved and didn't get the bill, had an emergency or other extenuating circumstance; this will let the underwriter know that you are serious about meeting your financial obligations except in these few extreme circumstances.

If you've been thinking of getting a mortgage loan in the near future, use these tips and make sure you have all your ducks in a row before you apply. You'll make it to closing a lot faster and you won't have any last minute surprises show up that can delay closing on your new home. Getting a mortgage doesn't have to be the nightmare you may have heard about from other people, go into the situation prepared and you'll enjoy every aspect of buying your home from the start of your mortgage application process to the day they hand you the keys at closing.