Advice on getting pre-approved for mortgage

Borrowers with high FICO scores -- the top tier ranges between 760 and 850 -- can expect lenders to offer them lower interest rates and more loan choices. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.

So that you know, typically there are several considerations when getting a mortgage loan - three of the most important are: i) your loan-to-value; ii) your debt-to-income ratio; and iii) your credit rating.

I will review each one in turn, and then help you understand how credit scores can impact your rate.

1. Loan to value: This is calculation looking at how much you want to borrow, relative to the value of the home. It is directly impacted by the amount of money that you can put down on your new home. The larger the down payment, relative to the value of the home, the less risk the lender has to take in extending to you a loan.

2. Debt to Income: This ratio looks at your monthly debt obligations (payments of interest and principal) as a percentage of your monthly income. If you have a significant amount of debt, your debt service burden may be too high for a lender to comfortably give you a loan. You need to either increase your income, or cut your debts.

3. Credit Rating: Your loan, including terms like interest rate and points, will depend on your credit worthiness. One measure of credit quality is a credit score (sometimes a specific 'FICO' score). Your credit rating is calculated based on several variables, including: your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history. If you have a good credit score, you will get a better loan.

Fair Isaac's consumer Web site offers a chart that is updated regularly and shows how your FICO score can affect your interest rate. You can access the chart at www.myfico.com.

According to the chart, with your current score of 580 you could be charged about 9.58%. It is vital that you understand your whole credit profile, not just your score. Score alone is not the end all be all to mortgage qualification. Other offsetting factors can balance a low credit score, such as a large down payment, large cash reserves or an overall low debt to income ratio. I encourage you to visit the Bills.com Mortgage Resources page at http://www.bills.com/mortgage/ where you can read about the various types of mortgages available on the market and determine what type of loan you are interested in borrowing. If you enter your contact information in the Bills.com Savings Center at the top of the page, we can have several pre-screened mortgage brokers contact you to discuss the options available to you. Bills.com also has useful tips on tracking and improving your credit at http://www.bills.com/credit/.

I hope the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com