Before you begin house-hunting, it’s best to know from your lender if you pre-qualify or are pre-approved for a home loan mortgage. It is important to understand the difference. Your pre-qualification tells you how much the lender will be willing to lend you. It usually involves a letter from your lender stating how much mortgage you are able to afford. This comes from their examination of things like your income, assets, debt ratios and work history. Don’t be surprised if it take a couple of weeks to get your mortgage lender to get a pre-qual letter to you.

On the other hand, pre-approval, takes it a step further and will often involve up-front, non-refundable fees. At this point they are looking at your credit history, your assets (to make sure you have enough for the down payment as well as enough left to cover closing costs). Once you’ve been approved, this signals both the real estate agent and the seller that they can now sit down and begin the serious negotiations.

Why your credit history and a good FICO score are so important Based on your credit report (i.e. your credit history), your credit scores are numbers calculated on a point system where you get points for being a good borrower and lose points if you’re not. The FICO score, which was developed by the Fair Isaac Corporation, is the most commonly used scoring system, which accesses the three main credit reporting bureaus (Equifax, TransUnion, and Experian.)

Credit scores can range from a low of 300 points to a high of 850. A general gauge of scores is as follows: 620 is about average, 660 is good and anything above a 720 is considered excellent.

An Example Of What A Difference A Score Makes

As an example, let’s look at a person with a credit score of 620 requesting a 30-year loan for $215,000. For the sake of argument, we’ll say they get an interest rate of 7.60%. If they had a score of 720 or better, they could have gotten the same loan at 6.00% (a difference of 1.60%) or a potential savings of $230 per month. Should your credit score fall below 620 then you’re in the sub-prime mortgage category and your interest rate could jump to around 8.53%.

How you can get the best rate A good strategy for securing the best mortgage rates would be to clean-up your credit report at least six months prior to applying for a mortgage loan. If you can also maintain a debt-to-income ratio of 36% or less, you also have a good chance at bumping your score by about 10%. Lenders like to see a history of long-term credit and ability to pay off a loan over time. As someone looking to borrow a large sum of money, your goal should be to ensure your credit history is clean and accurate. If you find any mistakes, take action to get them corrected as soon as possible.

If you’re looking for more information about mortgages, whether it’s a Portland home mortgage to purchase a new home or a Portland refinance for your existing home, you will find a lot of good information at www.PortlandRefinanceHelp.com

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