Friday, June 11, 2010

How your credit report can help you buy your new home

Interest rates may be low, but it could be harder to get a home loan with the Financial Bill currently in Congress. As of June 10, 2010, a section was added to the bill to impose more restrictions on mortgage lending. These restrictions include making sure borrowers actually have the ability to repay the loan (bet you thought that was already part of the process) and requiring lenders to maintain part ownership of every mortgage they sell, including second mortgages. That way, maybe they’ll be a little more careful about selling to people who will have both the capacity and the inclination to repay.

And how will lenders know if you have the inclination, the likelihood, the moral fortitude – whatever you want to call it – to repay and to make payments on time? They look at the credit reports they usually will purchase from one of the nation’s three major credit reporting agencies. They also look at your credit score, which is calculated by plugging things like your payment histories, employment history and all manner of things about you into a complicated mathematical formula. The higher your score, the more likely you are to pay back your loan.

Your credit report is your opportunity to demonstrate to lenders that you are earnest about your promise to repay your loan. It’s best to view it as a tool that can help you and learn how to make it work for you. A recent post about the Four Myths About Your Credit History on the Equifax Personal Finance blog puts to rest some of the intimidating myths we’ve all heard about credit reports and could be your first step toward looking at your credit report in a new way and making it work for you as a new home buyer.