When was the last time you checked your credit report?
There is no arguing the fact that your personal credit history is an important part of your overall financial position. But your credit profile is even more important when you are trying to qualify for a real estate loan.
In this article, you will learn how the different aspects of your credit profile can determine the type of loan options that may be available to you when you’re ready to purchase or refinance a property.
The Stuff That Can Affect Your Credit Scores
Here are some common things that can affect your credit scores during the mortgage loan process. It’s especially useful to know this if your credit profile is marginal and you plan on buying a home in the near future.
1. Opening a new credit account.
2. Having high balances on your credit cards.
3. Late payment on a mortgage.
4. Having your credit report pulled too many times in a short period of time.
5. Credit is too new. (recently opened)
6. Somebody misses a payment on a loan that you co-signed for.
7. Not having enough established credit.
8. Inaccurate information reported on your credit file.
Conventional Loans vs. Private Money Loans
Conventional loans and private money loans are very different. And your credit score is one of the biggest factors that will affect which type of loan will be available for your current situation.
Let’s take a closer look to see how the credit requirements compare between the two.
Conventional Mortgage Loans
These are some of the possible credit requirements you can expect on a conventional mortgage loan:
- All Borrowers must meet the credit score requirements
- Updated credit report may be pulled before funding your loan
- The middle credit score is used for qualifying
- A drop in score can affect your interest rate; and thus your payment
- A drop in credit score can increase your cost for the loan (points)
- When there are 2 borrowers, the lower scores between the 2 people may be used for qualifying
- If you middle score falls below the minimum requirement, it can disqualify you from the loan altogether
- No major derogatory (bad) credit events in the past few years: bankruptcy, short sale, or foreclosures.
Any one of these situations may hurt your chances of getting your loan fully approved and funded.
Private Money Loans
Private money loans, or hard money as they are sometimes referred to, have no one-size-fits-all requirement for your credit scores or credit history. Every loan request is reviewed on a case-by-case basis.
The interest rates are much higher than a bank loan, but the trade-off is the flexibility and convenience of actually getting your loan funded sooner than later.
When it comes down to it, your credit scores can make or break a deal.
Here are a few benefits of a private money loan that might help ‘make’ your loan possible.
- No minimum credit score requirements
- No credit scores are okay
- No credit history is okay
- The loan fees are not directly tied to your credit score
- Credit scores from co-borrowers will not really hurt your loan approval
A Plan B for Your Financing…
Conventional and Private Loans are on 2 opposite ends of the lending spectrum. We’d love to see you secure a 30-year fixed mortgage with the lowest rates in the industry.
However, if you find yourself in a situation where a traditional long-term loan is not possible through your bank or credit union, you may consider looking at how private money can solve your immediate needs.
Our goal is to help you get the financing you need now so that you can hopefully get into a low interest rate mortgage loan down the road.
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