A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Credit scoring is widely accepted by lenders as a reliable means of credit evaluation.

Credit scores analyze a borrower’s credit history considering numerous factors such as:

* Late payments
* The amount of time credit has been established
* The amount of credit used versus the amount of credit available
* Length of time at present residence
* Negative credit information such as bankruptcies, charge-offs, collections, etc.

To obtain a copy of your credit report, contact any of these credit-reporting agencies:

* Experian, www.experian.com
* Trans Union LLC, www.transunion.com
* Equifax www.equifax.com

While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time:

* Pay your bills on time. Late payments and collections can have a serious impact on your score.
* Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
* Reduce your credit-card balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively.
* If you have limited credit, obtain additional credit. Not having sufficient credit can negatively affect your score.

To correct any errors on your credit report, you must write to the credit card company and explain the error.

If the creditor concurs that an error has occurred, the credit card company must report and correct the error to the credit-reporting agency.

Interest rate movements are based on the simple concept of supply and demand.

If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates.

If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates.

When the economy is expanding there is a higher demand for credit, so rates move higher; whereas when the economy is slowing, the demand for credit decreases and so do interest rates.
Inflation drives interest rates

Higher inflation is associated with a growing economy. When the economy grows too quickly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing.

When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval; therefore, pre-qualification is not a commitment to lend.

After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.

Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to a lender’s underwriter, and a decision is made regarding your loan application.

When your loan is pre-approved, you receive a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller.

Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan.

As a result, the only thing that changes when a loan is sold is to whom you mail your payment. In the event your loan is sold you will be notified. You’ll be informed about your new lender, and where you should send your payments.

A rate lock is a lender’s promise to “lock” a specified interest rate and a specified number of points for you for a specified period of time while your loan application is processed.

During that time, interest rates may change. But if your interest rate and points are locked in, you should be protected against increases. Conversely, a locked-in rate could also keep you from taking advantage of price decreases.

There are four components to a rate lock:

1. Loan program
2. Interest rate
3. Points
4. Length of the lock period

The longer the length of the lock period, the higher the points or the interest rate will be. This is because the longer the lock, the greater the risk for the lender offering that lock.

Loans where the borrowers’ down payment is less than 20% often require mortgage insurance, which can be provided privately or publicly.

Conventional loans requiring MI are insured by private mortgage insurance. FHA loans are those whose MI is provided by the Federal Housing Administration, a public, government program backed by taxpayers.

Both mortgage insurance options have premiums, often paid by the borrower. Each program has advantages and disadvantages depending on your unique situation.

This checklist outlines the principal documents and information that are generally required to complete the application. Additional documentation may be required, depending on the circumstances of your loan. By having the information available, you will save time and avoid delays.

* Copy of Purchase Sales contract or Offer to Purchase and all addenda (signed by buyer and seller)
* Past 2 years’ tax returns and W-2s
* Past 2 years’ employment history
* Last 3 consecutive paycheck stubs (5 if paid weekly)
* Name, address, and phone for past 2 years’ residence(s) and landlord(s) (if renting, evidence of 12 months’ rent payments)
* Last 3 months’ statements for savings, checking, CD, money market accounts, etc.
* Recent statement on retirement accounts (IRA, 401k, 403-B, Annuity, etc.)
* Monthly payments and balances on all open accounts
* Proof of all additional income
* Divorce Decree (if applicable)
* Bankruptcy schedules/Discharge papers (if applicable)

Additional information that may be required:

* Estimated market value of assets, such as autos, furniture, personal belongings, etc.

Be prepared to discuss where the money for closing will come from, including down payment and closing costs