Credit - Article 5.

LENDING FROM THE LENDERS' PERSPECTIVE

You've made the offer to purchase the home of your dreams. The Seller, after some haggling, has accepted your offer. The offer was contingent upon you being approved for a mortgage. Are you concerned whether or not you'll get the mortgage? Will you get the best deal you can? Chances are that if you've waited until this point to work on your loan, you will NOT get the best deal available to you.

As we discussed in our last conversation, it could very well be crucial to your financial well-being to understand this process, since the cost to you of the credit you are seeking will amount to thousands of dollars out of your pocket. In this light, it behooves one to seek and then pay the lowest amount possible for credit. To help you with this process, I have sought the counsel of a mortgage-lending expert, Chris Zehnder, who is a fee-only financial advisor in Orlando, Florida. The following facts and opinions were gleaned from my conversation with Mr. Zehnder.

The first thing any mortgage lender will want to do when you apply for a loan is obtain your credit report from one of three national credit-reporting companies. Your credit history determines your credit score, from which all lending decisions subsequently flow. How is your credit score generated?

The most recent several years of your financial history is examined - what debts have you carried? What is your payment history? Are you a slow pay or do you keep your promises to pay on time? Are there lawsuit judgments against you? Have you declared bankruptcy? How much debt is already available to you - what are the credit limits on your charge accounts?

Obviously, the higher your score, the more interested the lender will be in your business. A lower score may still qualify you for a mortgage, but the lender may then charge a higher rate or place additional conditions on your loan. Here are the tips Mr. Zehnder offered to those interested in getting the best mortgage deal possible:

	Generally speaking, do not randomly put yourself in a position where others will be obtaining your credit report - each time your credit history is pulled, there may be a negative effect on your overall credit score as lenders will be concerned that you are trying to obtain a lot of credit in a short time - so limit the number of times you authorize anybody to access your information;
	About 90 - 120 days before you think you'll need the loan, obtain a copy of your credit report through www.myfico.com (pay for what's called a "3-way merge" so you'll get the most thorough data) and comb through it for any inaccuracies or misreported items;
	Close any inactive accounts so that your "available credit" won't be unreasonable;
	File dispute letters regarding any entries you question or challenge (the credit agency has to investigate) and take this opportunity to explain specific issues (divorce, medical, identity theft) affecting your history;
	Take steps to have entries expunged where appropriate (the debt has been paid or the judgment satisfied);
	Remember that lending is a negotiation - fees are negotiable and rates and terms are negotiable - and you should do your negotiating with at least two potential lenders BEFORE they pull your credit report; so that you limit the number of reports issued;

The downside to impaired credit is costly indeed:

	Higher interest rate
	Lower loan-to-value ratio
	Imposition of prepayment penalties
	Higher loan application costs

Please do your credit repair work ahead of time - for once you have already committed to buying the house of your dreams, it is probably too late to do anything but accept the terms the bank offers you and you'll be paying more than you might otherwise have to.

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