How do I get my credit score ready to buy a home?
Dave: Hi everyone Dave Sullivan here with special guest Eric and Yanci, one of my very early fans on YouTube. I’m so glad that they’re here with me today. Thank you both for coming on the show.
Eric & Yanci: Thank you for inviting us.
Dave: They’ve been working very hard on their credit. We have been emailing back and forth. Now they are at the point now when they just about ready to start shopping for a new home. You get your credit scores from MyFICO.com correct?
Eric & Yanci: Yes
Dave: One of the things I like to tell people about MyFICO.com is that they need to be careful because you’re getting more than one credit score, originally you used to get only FICO9 and now MyFico.com is providing FICO5 as well as others. In the mortgage industry we use FICO5 so your scores may vary slightly.
I think Yanci is in really good shape and Eric is right there 620 is considered the minimum, but if you can get to 640 you both will be in very good shape, interest rates are so low right now it is a great time to buy a home. What is your goal? What is your time frame?
Eric & Yanci: Well our apartment lease is up June 15, we really wanted to find our own home. We opened an account with a credit union. My main reason was to start a relationship with a lender and get ready for our lease expiration. Eric and I are interested in applying for a Mortgage and seeing what happens from there.
Dave: You said that you opened an account at the credit union, what type of account?
Eric & Yanci: It was just a checking account.
Dave: Good you’re establishing a relationship, a good idea, credit unions are always a good choice in a financial partner. I would definitely tell you to shop at more than one lender. People normally will call the first company they see on TV.
Companies who advertise on TV are paying thousands and thousands of dollars for that exposure. Those companies have to make that money up somehow and usually it is on your loan, maybe not your specific loan but over the course of all the loans that they originate. Although it might feel like they’re making it up on your specific loan.
Eric & Yanci: How do we find a good lender?
Dave: I would recommend looking for your local Mortgage Association in your state. In Michigan it would be the Michigan Mortgage Lenders Association, find that group in your state then go to the president of that group because they are someone who cares about his industry to take a volunteer position like that. What state were you guys located?
Eric & Yanci: North Carolina
Dave: I’m sure there is a North Carolina Association of Mortgage Brokers. Eric specifically your credit situation, there is a variation in between your three scores. One is about forty points higher than the lowest one.
Eric & Yanci: Yes.
Dave: As you know mortgage lenders look at the middle score, that is the only score the lender care about. What I do, when there is a forty point difference, I try to figure out why there’s such a wide variation. If you take your three credit reports lay them down next to each other. Go through and find where the differences are in between your repositories files.
If you find the differences then you can figure out what your next move is. Sometimes collection companies may not reporting to all three repositories or even a balance that is not being reported correctly.
Eric & Yanci: I think I know why. I had a collection on my credit report and I tried to get it removed. I paid it and they said that they would remove it, but they never did. I called and called to try and get them to remove it but they never would.
Dave: You have to be careful when trying to get a pay for delete. If you don’t get something in writing from them before you pay it off. It can be very hard to get them to work with you after they get the payment.
Eric & Yanci: I actually got into contact with them, I was going to offer to pay it in order to get it removed from my credit report. I went ahead and made the payment. Later, when I accessed my credit report it was still there. They keep giving me the run around, telling me that they were going to take care of it, but the collection company never did.
Dave: You made the right move, at least you got some documentation from them that said it was paid. As long as it’s showing paying on your credit report that is all you can do now. As it gets older and older, further back in time, the collection account will have a reduced impact on your score.
I’m sure you’ve seen this already as you work on your credit, your scores have come up obviously, when we first we emailed your scores were very low.
Eric & Yanci: Oh yeah! It was Yanci, She did most of the work.
Dave: It is a team effort. I don’t know if you watched the interview I did with Wes a couple weeks ago? He works in state government and he had very bad credit. He fixed his credit on his own. The most important thing he said was “don’t give up”. Obviously you guys have not given up. It is really important that people realize that it doesn’t happen overnight. If you can stick with it, you can get there. One thing that you can do is bring down your revolving balances to 5 percent of the high credit.
I probably would start the mortgage process right now. Yanci you look stressed?
Eric & Yanci: Very nervous Dave.
Dave: It will be fine, like I said if you go to the right person. You should be fine. In the mortgage industry which I’ve been a part of for twenty years now, there were a lot very bad apples. Now because of all the regulations that are in place, almost all of them are gone. Go to your local mortgage association president or officer. They will take good care of you.
Eric & Yanci: Last year we tried, I work in a Doctor’s office and a lady came in there and asked me if I knew of anyone looking for a mortgage. I told her I was and I gave her all of our bank statements and w-2’s. She tried to work with us, but our credit was just not ready. So we have been trying to establish a good credit history ever since. That is when I found you and your website.
Dave: I think that you are ready to talk to a mortgage lender again. One thing I would tell you is to go to more than one. I think that is the best advice I could give. Get all your documentation together because like before the lenders are required to document to death. They’re going to ask you for all kinds of stuff but don’t get freaked out it is just part of the process now.
Eric & Yanci: okay, I get a little tensed up, they question you about everything.
Dave: I know it can feel that way. Don’t feel like it is only you, it is everybody. It is just all of the regulations that the government has brought on the industry. As long as you guys have all your ducks the row and it looks like you do you will be fine. Don’t make any career changes how long have you been at your jobs?
Eric & Yanci: Eric has been there two years, Yanci has been at her job for almost three years.
Dave: You guys are fine then. Get your bank statements and tax statements together, then you’ll be prepared. Let them pull your credit before you give them anything. You guys have done a great job and I want to congratulate you both. I definitely want to hear back from you when you move in to your new home.
Eric & Yanci: I have a question though, with our tax returns, Do they have to go behind our back to the IRS and pull the 4506T?
Dave: They’re not looking behind your back, it is just that HUD mandate that they go and get copy of the tax forms that you filed with the IRS directly. It’s not that they’re doing this to go around behind you. It is just mandated by the government.
Eric & Yanci: Well the reason I ask is because we’ve been doing it separate for the past three years. I had some debt and I wanted to get it paid before we started to file jointly. Last year they questioned me about it.
Dave: People are allowed to do that, you’re not required to file joint returns. I think there is some advantages from a tax perspective that you might want to take advantage of by filing joint. If Eric is not ready to make that commitment I understand. J It’s not a big deal. You guys will be fine don’t stress out.
Eric & Yanci: Alright.
Dave: I’m very excited for both you please keep in touch.
Eric & Yanci: Thank you very much.
If you’re looking for other ways to improve your credit score please go to GetLoanReady.com you can get free videos and worksheets to increase your credit score from a more holistic perspective. Never Pay Collections
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