Banker helps buyer fix surprises on credit report

Mortgage banker:

Property type: home in Milford

Purchase price: $279,000

Loan amount: $270,630

Loan type: Conventional Mortgage

Appraised value: $285,000

Backstory: A home buyer was recently referred to Terzakis by a local Realtor to get pre-approved for a mortgage.

She and her Realtor has started to casually view homes in the Milford-Orange area and her Realtor urged her to get pre-approved for the mortgage to get everything in order to prepare for the home buying process.

The buyer was not overly concerned as she knew her income was more than enough to qualify for the $300,000 target price Terry T. Terzakis Single-family point. She was also not concerned about her credit as she believed her scores would be very high.

However, once Terzakis began the pre-approval process with the buyer, she was quite surprised to learn that her credit score was 578.

She was unaware that a credit card and a car loan, which she opened for her son had been paid late several times. Additionally, several of her own credit cards had been maxed-out.

She recently had several unexpected expenses for her business and had to use her personal credit cards to assist her with these expenses.

Terzakis explained that even though those particular accounts had always been paid on time, 30 percent of a person’s credit score is related to their revolving debt. The credit bureaus look at the ratio of their account balances to the credit limits. When the accounts are maxed-out, this can significantly lower credit scores.

Terzakis let her know that the bank needed a middle credit score of 580 to get an Federal Housing Administration mortgage, or 620 for a conventional mortgage so there was some work to be done before she could be pre-approved.

Terzakis recommended a plan of action: Contact the creditors who were reporting late payments on the acounts her son was paying and ask if they would consider removing any of these derogatory marks.

Sometimes creditors, as a onetime courtesy, may do this. She was unsuccessful with one of these requests, but one creditor did agree to remove two of the late payments.

Her next step was to pay down her credit card debt. The buyer was able to pay down three credit cards so that the balances were below 50 percent of the credit limit.

With letters from the creditors and updated credit card statements, Terzakis was able to perform a rapid score update with the credit bureaus and within three days a new credit report increased her middle credit score to 663, more than enough for a conventional mortgage.

Since the buyer had to use a good amount of her assets to pay down her credit card balances, Terzakis was still able to get her a conventional mortgage, placing her in the Fannie Mae Home Ready program, which only requires 3 percent down payment.

An additional benefit to this program is they offer low fixed rates and low monthly private mortgage insurance, whereas a traditional conventional mortgage would increase these rates based on lower credit scores.

The takeaway for this and all buyers is to be sure to get preapproved for a mortgage before beginning the home buying process. You never know what surprises could pop up that may need to be corrected before placing an offer to purchase a new home.

Terry T. Terzakis, Mortgage Banker Atlantic Home Loans, 2751 Dixwell Ave., Hamden, 203-691-9788 tterzakis@atlantichomeloans.com