While the vast majority of mortgage loans currently written are either fixed rate or adjustable rate mortgages, within those categories there is a wide range of documentation provided to the lender. Mortgage shoppers are given much latitude in deciding how much of their personal information they wish to disclose. Generally speaking, the more an applicant discloses to a lender the more favorable the interest rate will be. The one constant that lenders will insist on seeing is the applicant’s credit profile. Credit profiles commonly take forms: traditional and non-traditional. A traditional credit profile comes in the form of a credit report and, as the term suggests, is the more readily accepted form of credit disclosure. Credit reports are generated by three credit reporting bureaus: Equifax, Experian, and Trans Union. Each bureau will provide a three digit FICO score (Fair, Isaac and Company) ranging from 400 to 900. The details of a credit report include: any bankruptcies, foreclosures, lawsuits, and judgments; a history of all student loans, car loans, mortgage loans, and credit cards past and present; and balances on all current accounts. While each credit bureau uses its own methods and calculations, their scores are usually very close. A high FICO score will reflect a solid, timely payment history, low balances on current accounts, and no public records. Conversely, low FICO scores are the product of poor management of accounts, late payments, collections, Of course, credit reporting is not always as simple as generating a credit report and submitting it to the lender with a client’s application. Why? Well, suppose a client relies heavily on cash transactions and has never established credit. The flipside of poor credit scores due to recklessness with credit cards is no credit scores due to extreme caution with credit cards. Another tricky scenario could be a client with excellent credit scores based on recently opened accounts. Lenders will only accept solid credit scores based on “seasoned” accounts which have been open and active for at least two years. Unseasoned credit or lack of a credit score should not dissuade mortgage loan shoppers from applying for the loan. A good mortgage professional should counsel them and advise them to provide the lender with non-traditional credit, sometimes referred to as alternative credit. A client’s good standing with their cell phone provider, cable company, landlord, insurance company, telephone company, utilities providers, and the like, usually is not reflected on a traditional credit report. But, if the client can obtain three or four signed letters, on company letterhead, stating the length of time that they have been customers and their solid payment record, many mortgage lenders will accept them as alternative credit. The process of obtaining a mortgage loan often involves overcoming obstacles. When necessary, establishing alternative credit has been a valuable problem solving strategy in overcoming a common barrier to home ownership.
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