New Jersey Real Estate Digest: It's All About FICO

When you are looking to purchase a home, the thing to do is get your credit report and look at your FICO score. Fair Issac and Company (FICO) developed a method of determining if persons will pay their bills. The Fair Issac and Company product is called a FICO score. The scoring system is widely accepted by lenders as a means of credit evaluation. The higher your score the less interest you will pay in a loan when your loan gets approved and other perks lenders have to offer.

A mortgage is a type of loan used to pay the difference between the down payment and the actual selling price of a property. There are two methods of finding a mortgage lender. The first method has you going to a mortgage banker and beginning the application process. If you are approved you will be ready to look for a house. This does not mean that you actually have the loan though; it just means the bank is satisfied with your credit enough to pre-approve you for a certain amount. Once you have signed an agreement to buy a house you will begin the application process in earnest. If you loan is approved, (meaning the underwriter has all the information needed for approval and the appraiser agrees with the price you intend to pay for the property and a host of other things) you go to closing. Otherwise you must find another mortgage banker and begin there process.

The second method has you working with a middleman known as a mortgage broker. The broker does the loan shopping for you. The advantage of the broker is he can look at lenders who do not deal directly with the public according to a story by William Bronchick. The broker has more experience in working with lenders and knows how to present your application in a manner that could aid in its approval.

Choosing the route you want to take to a mortgage depends on the amount of time you have to put in pre-approval applications. Remember pre-approval quotes are not binding to the lender. The application has a number of contingency clauses that must be met. The contingencies protect both the buyer and the lender. If your FICO score is 670 or better you will look pretty good to a lender. If your score is 600 or below lenders will have difficulty offering you a mortgage or your interest rate will be higher.

The following list shows the things in the credit history the FICO score analyzes:

Late payments
The amount of time credit has been established
The amount of credit used versus the amount of credit available
Length of time at present residence
Employment history
Negative credit information such as bankruptcies, charge-offs, collections, etc.
(Source)

Correcting the things that affect the credit history takes time but getting the job done can make the dream of homeownership a reality. Here is a link to a page that has a number of calculators available to assist you.