YOUR CREDIT & LENDER
Getting pre-approved gives you an advantage when competing with other buyers. It’s quick, easy, and free, signaling to sellers that you’re a serious buyer with a loan likely to close. Know your budget before you start shopping.
UNDERSTAND YOUR CREDIT
Determining Factors
Payment History – 35%
- This is the most important factor.
- It reflects whether you’ve paid past credit accounts on time.
- Late payments, collections, foreclosures, or bankruptcies will negatively impact this.
Credit Utilization – 30%
- This is your credit card balances vs. your credit limits.
- Lower utilization (ideally under 30%) shows responsible use.
- High balances can signal risk, even if paid on time.
Length of Credit History – 15%
- The age of your oldest account, newest account, and average age of all accounts.
- A longer history generally improves your score—especially with consistent, on-time payments.
Credit Mix – 10%
- The variety of credit accounts you have, such as credit cards, auto loans, mortgages, or student loans.
- A healthy mix shows you can manage different types of credit.
New Credit – 10%
- How many new accounts you’ve opened and how many hard inquiries are on your report.
- Too many recent applications can lower your score temporarily.
Credit Report & Scores
Credit Reports are maintained by the three major credit agencies: Experian, Equifax, and TransUnion. These reports include details about your loan and credit accounts, reflecting your payment history, spending, outstanding balances, and available credit. It’s normal to have different scores at each agency, and errors are common.
Credit Scores are calculated using the FICO score model which numerically summarizes an individual’s credit history and gives a snapshot of your financial standing. A high credit score will increase your chance of getting approved at a good rate but a low credit score does not mean you won't get financing.
LENDER ROLE & RESPONSABILITIES
Lenders play a critical role in helping buyers finance their home purchase. They evaluate the borrower’s financials, determine loan eligibility, and provide the funds needed to complete the transaction.
Pre-Approval & Qualification
- Review income, credit, assets, and debts.
- Determine how much a borrower can afford.
- Issue pre-approval letters to strengthen purchase offers.
Loan Product Guidance
- Help clients choose the right mortgage product (Conventional, FHA, VA, etc.).
- Explain interest rates, terms, down payment requirements, and potential risks.
Loan Application & Processing
- Collect documents (W-2s, tax returns, bank statements).
- Submit loan application for underwriting.
- Communicate with underwriters and resolve conditions as needed.
Rate Locking
- Offer borrowers the option to lock in an interest rate.
- Ensure clarity on expiration dates and terms of the lock.
Coordination with All Parties
- Work closely with the borrower, real estate agent, title company, and underwriter.
- Provide timely updates and help keep the transaction on track.
Final Approval & Closing Prep
- Issue final loan approval (clear to close).
- Review and finalize loan documents.
- Ensure funds are available for closing and disbursed properly.
A Good Lender Should be transparent about fees, timelines, and loan terms, educate the borrower throughout the process be responsive and proactive in avoiding delays and troubleshoot challenges quickly (e.g., appraisal gaps or credit issues).
TYPES OF LENDERS
Here’s a breakdown of the main types of lenders in real estate and mortgage financing, each with their own pros and cons:
Mortgage Bankers
- Work for a bank or financial institution that lends its own money.
- Can offer competitive rates and a streamlined process.
- Examples: Wells Fargo, Chase, Bank of America.
Mortgage Brokers
- Act as a middleman between you and multiple lenders.
- Shop around for the best rate and loan program on your behalf.
- Often work with buyers with unique credit or income situations.
Credit Unions
- Member-owned financial institutions.
- May offer lower fees and competitive rates.
- Great for borrowers with an existing relationship.
Correspondent Lenders
- Fund loans with their own money but may sell the loan to larger institutions after closing.
- Provide in-house processing with broader lending options.
Direct Lenders (Online Lenders)
- Provide loans directly, often through an online platform.
- Known for convenience and speed, but sometimes limited in personal service.
- Examples: Rocket Mortgage, Better.com.
Hard Money Lenders
- Private individuals or companies offering short-term, asset-based loans.
- Often used for fix-and-flip or investment properties.
- Higher interest rates and fees, but flexible underwriting.
Private Lenders
- Can be a person or private company.
- Often used in niche or investment situations where traditional financing doesn’t work.
- Terms vary widely and are negotiated case by case.
TYPES OF LOANS
Here’s a clear breakdown of the main types of home loans—each suited to different needs, financial profiles, and property goals:
Conventional Loans
- Not backed by the government.
- Require good credit (typically 620+).
- Down payments as low as 3% (but 20% avoids PMI).
- Best for well-qualified buyers.
FHA Loans (Federal Housing Administration)
- Government-backed loan.
- Lower credit score and down payment requirements (as low as 3.5%).
- Great for first-time buyers or those with limited savings.
- Requires mortgage insurance (MIP).
VA Loans (Veterans Affairs)
- For eligible veterans, active-duty service members, and some military spouses.
- 0% down, no mortgage insurance.
- Often better rates and flexible credit guidelines.
USDA Loans (U.S. Department of Agriculture)
- 0% down loans for rural and some suburban areas.
- Income limits apply.
- Must be used for a primary residence.
Jumbo Loans
- For loan amounts above conforming loan limits (varies by county).
- Typically used for luxury or high-priced properties.
- Requires excellent credit, strong income, and larger down payments.
Adjustable-Rate Mortgage (ARM)
- Interest rate starts low and adjusts over time based on market conditions.
- Ideal if you plan to move or refinance before the rate adjusts.
Fixed-Rate Mortgage
- Interest rate stays the same for the life of the loan (typically 15 or 30 years).
- Offers stability and predictable payments.
Construction Loans
- Short-term loans for building a home.
- Converts to a regular mortgage upon completion (“construction-to-perm”).
- Requires detailed plans, budget, and a qualified builder.
Renovation Loans (e.g., FHA 203(k), Fannie Mae HomeStyle)
- Finance both the purchase and renovation of a home.
- Great for fixer-uppers or buyers wanting to customize.
Bridge Loan
- A short-term loan that helps you "bridge the gap" between buying a new home and selling your current one.
- Often used when you need to access equity in your current home for the down payment on a new property.
- Typically lasts 6 to 12 months and has higher interest rates than traditional loans.
- Can be structured to:
- Pay off your existing mortgage (so you don’t carry two payments), or
- Add on top of it, giving you access to your equity before selling.
Reverse Mortgage Loan
- A loan available to homeowners aged 62 and older, allowing them to convert part of their home equity into cash.
- The most common type is the Home Equity Conversion Mortgage (HECM), insured by the FHA.
- Unlike traditional mortgages, no monthly mortgage payments are required.
- The loan is repaid when the homeowner sells the home, moves out permanently, or passes away.