When you apply for a mortgage, one of the first things a bank or mortgage lender will request is a credit report. Good credit is critical to securing a mortgage, and lenders place a great deal of credence on the information they find in a credit report.
You should make every effort to be sure the information in the credit report is correct. Occasionally, incorrect entries are caused by mis-postings due to similar names. You should be particularly wary if you have a common surname such as “Jones” or “Smith” or if you are a “junior” or “senior.”
By getting a copy of your credit report before applying for a mortgage, you will know what creditors have reported, be prepared to explain any discrepancies and have time to correct any errors.
To request a copy of a credit report, contact one or more of the major credit bureaus: TRW (800-392-1122), Equifax (800-685-1111) or TransUnion Corp. (312-408-1050). You will be charged a nominal fee unless you’ve been denied credit in the last 60 days.
Close inactive credit accounts
The lender who reviews the mortgage application will be looking not only at how much you owe, but also at the potential amount of credit available. For the purpose of calculating debt, some lenders consider the minimum monthly payment that would be due on each outstanding credit account, regardless of whether or not the account is active.
The lender’s rationale is, it is possible that at some point after you obtain your mortgage loan, you could potentially use these accounts to run up debt that could affect your ability to make the mortgage payment.
The best way to avoid the risk of having too much credit available is to identify credit cards or lines of credit that you don’t use and notify those creditors you wish to close the accounts. Be sure to ask the creditor to indicate on the account that is was “closed at the customer’s request.”
Allow 60 to 90 days for creditors to close accounts and notify the credit reporting agencies.
Town Crier Staff Report
Applying for a mortgage can be a complex, expensive and emotionally-charged experience. To make the process go more smoothly, the California Society of CPAs suggests you take the following steps before applying for a mortgage.
Get your financial records in order
Once you apply for a mortgage, you’ll need to submit a great deal of paperwork. You can get a head start by beginning to put together what you can. What you need will vary by lender, but you can be certain your lender will want to verify your employment information to ascertain whether your income is not only sufficient, but also if it is stable enough to meet monthly mortgage payments.
Items you may be asked to produce include the names, addresses, and phone numbers of previous employers; IRS W-2 forms; your last two paycheck stubs; copies of bank statements; account numbers and balance information for each of your credit cards and for any outstanding loans; and copies of your tax returns from the last two years. The latter item is particularly important if your are self-employed.
You also may be required to verify other income sources such as Social Security benefits, interest and dividends, rental income and alimony that you want the bank to consider in qualifying you for the loan.
In some cases, lenders require less paperwork if the down payment is 25 percent or more of the purchase price.
The California Society of CPAs is the major source of this report. If you would like to set up an interview with a CPA, call 802-2532 or fax 802-2300.
