7 New Home Loan Myths: Busted

Mortgage rates are still at an all-time low, but financing is a confusing process for many buying a new home.

Alex Hawkins is a credit consultant with C Solutions, an exclusive financing resource for Ideal Homes & Neighborhoods. “C Solutions is a liaison between buyer, builder and mortgage company,” Alex said. “Our job is to guide you through the home financing process – to help you achieve the home of your dreams.”

She says there are a lot of myths about the whole home credit process. Here are some things for you to keep in mind.

1. You can never qualify if you’ve had payment or income problems in the past.
   NOT TRUE. Lots of buyers do not want to get their credit pulled because they don’t want the answer to be “No.” It’s never a “no,” it’s just a question of when. Time really does heal all wounds.
2. You have to have a certain credit score to qualify.
   NOT TRUE. Required credit scores are set by each investor and depend on the type of loan.
3. You should not have your credit pulled because it will lower your credit score.
   NOT TRUE. As long as you are not having your credit pulled several times in a short period of time, a hard inquiry makes only a small hit to your credit score.
4. You cannot qualify because you are self-employed.
   NOT TRUE. Other factors can compensate. An experienced credit/financial consultant can help you navigate the process successfully.
5. You have had clean credit for almost seven years, and all the old stuff will automatically go away when you reach that mark.
   NOT TRUE. Some collections do not go away or “fall off.” Although tax liens do not always report to the credit bureaus, you will need to take steps to remedy your tax obligations. Your credit advisor will help you find the best way to do that.
6. You need a credit repair company to help you qualify.
   NOT TRUE. While some are good and can help you, there is nothing they can do that you cannot do for yourself for free.
7. You plan to pay off all your outstanding debt and/or collections — then you will be sure to qualify.
   NOT TRUE. Paying collections can lower credit scores initially because you are closing out an account (albeit a negative account). However, it is often a necessary evil to start raising the credit scores. Paying down debt is excellent to free up the debt portion of the debt-to-income ratio, but you do not want to close any accounts (e.g., credit cards) during the home loan process as that can lower the scores.

Alex says the first step in financing a mortgage is to fill out the Credit Authorization form.

C Solutions will pull your credit report and review it to determine the breakdown of your car loans, student loans and credit cards as well as collect important documents from you.

The next step is to calculate your debt-to income ratio. C Solutions will total your monthly payments on interest-bearing debt, such as car payments, student loan payments and credit card bills. To arrive at your debt-to-income ratio, add your total monthly payments to the projected house payment.

The general rule of thumb is that this total should not exceed 45% of your gross monthly income.

If you meet the 45% rule, or qualify for an exception, you’re good to go. C Solutions will issue a pre-approval.

If you do not meet the 45% rule, all is not lost. C Solutions will customize a roadmap and then work with you to address the various issues. How long does this take? Of course it varies by case and could be as little as a few weeks and as much as six months to more than a year.

Alex advises that the mortgage game changes all the time, and everyone’s case is unique. Mortgage is not a one size fits all deal. For more information on preferred lenders and financing, visit Ideal Homes & Neighborhoods.

Erin Yarbrough