Tarpon Springs, FL (PressExposure) September 08, 2006 -- Tarpon Springs, FL â Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrowerâs income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. Itâs important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible, says Ron Borg, President of Mortgage123.com and Broker Laiason to Consumer Advocate Harj Gill..Mr.Gill is the founder of the Consumer Information Center, MortgageFreeUSA.
Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, itâs safe to assume that as the consumerâs credit score goes down, the interest rate they qualify for will go up.
A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time. While a credit score cannot accurately predict the future, lenders consider credit score as a historical reference point - a reasonable estimate of what may occur in the future.
Loans designed for consumers with less-than-perfect credit â sometimes referred to as âsub-primeâ, or "B/C" â can range anywhere from A-minus, B-paper, C-paper or D-paper loans. Additionally, many borrowers that have excellent credit but some other factor may push them into loans known as "Alt-A"
If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally tens of thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.
A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will review the terms of the existing mortgage loan to determine if a pre-payment penalty clause written into your contract. Many mortgage loans today require a penalty to be paid if the loan is refinanced prior to the third anniversary of the loan closing. Typical penalties are 6 months of interest, which can be quite substantial depending on the loan balance. You can check to see if you have a pre-payment penalty by reviewing your mortgage "note", which you should have received at the loan closing..
Next, you should obtain free copies of your credit reports from http://www.AnnuaCreditReport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty, if any. The Consumer Information Center available at http://www.MortgageFreeUSA.com provides potential mortgage borrowers with a wealth of information. The site is dedicated to cleaning up the abuses that have been occuring of late throughout the mortgage industry. The information center provides a list of ethical mortgage brokers that abide by very specific guidelines that must be adhered to in order to be considered for the list.
There are five primary factors that make up your credit score. A qualified mortgage advisor can coach you through some specific strategies to improve your score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus.
Youâll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely. Surprisingly, moving balances from one credit card to another, even though you may be reducing your interest or payment, can have a negative affect on your score. Paying off older collection accounts can also lower your score. Again, a qualified mortgage advisor can help to make these determinations.
Another item that can lower your score are inquiries. "The 3 major credi bureaus in this country state that your credit score will not be adversely affected by shopping for a mortgage as long as all the inquiries occur within 14 days of each other. But we have seen this not to be the case", states Mr Borg. His company's website, http://www.Mortgage123.com, offers mortgage shoppers multiple lender quotes while only accessing your credit report once. "Using only one credit pull should benefit your credit score, but more importantly, may help protect the privacy of mortgage shoppers. Allowing a number of mortgage outfits or websites to access your credit report could mean that your social security number is bouncing around within several companies. We feel strongly that the less you give out your social security number the less chance there is for credit fraud. People today are very concerned over identity theft. Minimizing credit pulls is one way you can cut down on that possiblity".
Once your credit score improves, itâs time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.
This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a roadmap to follow and a strategy for success in building personal wealth.