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December 14, 2012

The Facts Behind Credit Reports & Loans

This time of year often sees prospective home buyers start to lay some groundwork for a home purchase in the following year. And based on many such individuals contacting me about potential house hunts this month, I’m guessing it wouldn’t hurt to put up a few posts about the many aspects behind getting your loan preapproval.

I recently ran a post about the reasons lenders need to pull credit reports when completing loan preapprovals. In keeping with that reality, I thought I’d share some tips from my colleagues at Guarantee Mortgage about how credit report details factor in to your loan preapproval. Because the more buyers understand about the process, the more confident they can be about making decisions along the way.

Each of the credit bureaus report address history, number of credit inquiries in the last 120 days and discrepancies related to social security numbers or name variations. Lenders then review what the bureaus report and compare them to the info you provide in your loan application. So it’s important to know what’s important to a lender, and you won’t get tripped up:

Note your address history. If an address is reported within the last two years that isn’t listed on your loan application, then an underwriter may request a written explanation to connect the address to your living history. Be prepared to provide that documentation if need be.

Be aware of your credit inquiries. When there are credit inquiries reported, lenders ask that a borrower explain the details behind the inquiry, as well as whether any new credit was obtained. If there were new accounts opened, but not listed on the credit report, then the report needs to be updated so the new account is shown. Your credit score could be impacted by this process.

Name variations will need to be clarified. This is common to see for married couples or for those who have moved to the United States from another country. Lenders will typically ask a borrower to sign an “also known as” statement at closing to address this.

Have your credit checked early in the preapproval process. The bottom line is that you should allow a lender to run a credit check as one of the first steps in your loan preapproval process. It’s key to understand what issues may exist, how you can resolve them, and ultimately, how you can avoid a lot of stress in your house hunt.

[Above tips provided courtesy of Guarantee Mortgage.]

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