The one thing we can caution you about a loan application is to be honest. Don’t go increasing your income or hiding your expenses. It will just get you in trouble and trouble impacts your business credit scores in a big way. Trouble comes in many forms – you get sick, don’t make the hours you expect to be paid for at work and then don’t have the money to pay the bills, they get paid late and then you have lates on your credit report. Lates cost you lots of points. A mortgage company could audit your loan and find out you really don’t make that much or you have more debt than you said you did and could call the note due and payable immediately. Then you have to find another loan or lose the house. Especially in these troubling credit crunch days, being totally honest with your lender will keep you out of trouble more than not. Don’t get over your head with debt, start a savings plan, prepare for emergency situations, don’t get greedy or try to buy more than you can afford,  be cautious and you will have less trouble dealing with challenges when they do come…   And they will.

Let me share an experience.  Just recently I went in to get a loan for a new home I wanted to purchase.  I went to a lender that I know and trust and asked about the rates, the conditions and what it would take to get a loan for me.  He assured me that there was no problem, since I had enough collateral to actually pay for the home outright.  OK, so I say to go ahead, now, I did go to two other loan companies prior to settling with my friend because I thought I could get a better deal.  Well, I was turned down by both other companies because I had an unusual situation they had to deal with and they said they couldn’t go outside “the box”.  Meaning that unless it was a “check the boxes” loan, they couldn’t help me.  Hey, I have 803 credit score and it didn’t make any difference to them. Well, I started the loan process with my friend and as the loan application was filled out it was obvious that I was beginning to stress my friend.  It is going on 3 weeks now and the loan is still to get started as I have had to jump through hoops and put my down payment at risk before the bank will even begin to get started on the loan.  And this is why, my friends, that you do your homework before you get started.  Yes, you have to have excellent credit (740 or above) and make sure you have worked in the same job for 2 years, have the down payment seasoned (3 months in the same account, not touched) and don’t open or close accounts and don’t pay off any collections within a year. The moral is, the banks are being extra cautious and if your loan officer thinks it’s a slam dunk, be prepared to wait and do what is asked of you quickly.

In fact, council with an expert credit counselor if you are going to plan on purchasing in the next year or so… they will teach you what you need to do to get prepared.  But be cautious, read my blog, read the related blogs in the archive and then ask questions.  I would be delighted to answer them.

There are home purchases we make sometimes that require a special loan that can be very costly to our credit score and trans union. The main reason is that we are getting in over our head with a debt we can’t afford. The loans that are offered are interest only, buy down loans, adjustable rate mortgages, and option adjustable rate mortgages. Each of these spells disaster if we really can’t afford them and the slightest glitch in our income with cause a ripple effect with other debts and loans that you might have. The cost of coarse would be that you have lates, then can’t pay at all, foreclosure with loss of house and home and perhaps even bankruptcy. The ratios by mortgage lenders to give you only so much mortgage to so much debt is because the ratios have proven themselves to be correct.

The solution is to go to your mortgage lender and get pre-qualified to find out how much you can afford and then go shopping for a and don’t go over the amount you qualify for. This will keep you safer in affording the home you purchase and the mortgage you can get with the lowest rate possible. A fixed rate always seems to be a better, safer way to go than any exotic type mortgage.

NOTE – there are interest reduction programs out there that help to reduce interest of all kinds to pay off your total debt in 1/3^rd the time of conventional financing. You will pay 2/3rds less interest by comparison when dealing with these companies. Your spending habits will hardly be affected. In fact, it’s letting your money work for you instead of you always working for your money. We suggest going to the back of this book and see whom we recommend to talk to and get some information about saving even more money. Some we know have saved hundreds of thousands of dollars and paid a 30 year mortgage and credit card debt in as little as 7 to 10 years. Kind of a no-brainer.

Home purchase is another area where many people go and shop for a loan thinking that the inquiries won’t hurt them. Again, pull your own credit at www.MyFico.com, print it out and take it with you to shop for a loan. The lender will see everything he needs to see to make a preliminary decision before you decide to go with them and then they will need to pull your credit. They would need to do it anyway if you are going to use them as a lender, so it’s ok to do.

Having a mortgage on your credit report is a good thing and will boost your credit scores. Getting the loan down below the 80% debt to credit ratio is good and will help to boost your credit scores. Not having too many inquiries is a good thing and will keep your credit scores from dropping. Keep all these things in mind and go get the home of your dreams and live happily ever after.

NOTE – As a former loan officer, I had a couple come in after shopping for mortgage companies to get a loan for them. They had started loans with 4 other companies and finally came to us because they heard that we could do hard cases. Well, the couple had shopped so much that their credit scores explained had dropped below where they could get a loan from anybody because of inquiries. The drop in score was over 80 points. Another couple went online with one of those mortgage-shopping services. When all was said and done, their score dropped over 120 points just from going to one mortgage shopping service and having their credit pulled by 27 companies. Beware, do your own shopping with your own credit report with scores.

Auto purchasing has an interesting twist that needs to be discussed because of the nature of the business is sometimes questionable. You have heard of the “car salesman” that refers to dishonesty. Well, I have met some very honest and very honorable car salesmen and also some very dishonest salesmen. So, buyers beware. Let’s talk about how it relates to your equifax credit scores.

When going and buying a vehicle there are several mistakes buyers start out doing. They first go to one showroom and then another with salespeople hot on their tail to get them to qualify for a loan. So, they sit down with a salesman and the first thing he asks for is their social security number. The reason is he wants to find out what the buyer can qualify for. You can already see the problem. The salesman is going to pull their credit and see what their credit score is. This is just fine if this is the only place you look and the only place you purchase from, but most people go shopping and then you have a problem of multiple inquiries. This gets complicated right here because depending upon what scoring module the auto dealer uses to pull the credit, determines whether each credit pull is counted. Multiple inquiries can be very damaging to your credit score. The solution is to go to www.MyFico.com and pull your own credit, print it out and then go shopping. Ask the dealer to see what you can get with your score and find out pricing, rates, etc. before making a decision.

Another unique challenge with auto dealers is the fact that most do financing in house and actually make more money by financing you than by letting you get your own financing. Be forewarned… the auto dealer that offers credit-building financing is probably not helping you at all and is probably helping to further damage your credit. They will use a finance company that is a permanent damage on your credit reports whether you pay on time or keep your balances low just as long as you have the finance company on your credit reports. The reason is that finance companies are bad credit anytime you have them on your credit reports. The credit bureaus see them as companies that only deal with high-risk borrowers, have high interest rates and low qualification standards. Stay away from finance companies. (See secret # 62)

The solution is to go to your bank, credit union, etc, get your financing in place before you go shopping, negotiate a deal with the auto dealer then let them know that you already have your own financing. You will get a better deal and a lot more car for your money if you wait till the contract is signed before letting them know that you have your own financing.