Nothing will have a greater impact on your ability to refinance or buy more investment property more than your personal credit. You can finance almost anything today with a high credit score – regardless of your income. There are even ways to buy non-owner occupied property without putting any money down and without even having to prove your income. Don’t get too excited, though, because the interest rate is usually a good 2-3% higher than the average – and you must be able to show adequate cash sitting somewhere in a bank (anywhere from six to twelve months’ worth).
Before you apply for a mortgage – or any type of financing for that matter – you need to be prepared by doing the following at least three months in advance:
• Pull your credit report from all three major credit bureaus. If there is a problem with your credit that needs to be disputed (such as an account that is not yours or an inaccurate account status), it will take 30 days simply to dispute it. If the problem then still remains, you will need at least an additional 30 days to contact the creditor and hopefully resolve the problem.
• Pay off as many revolving accounts as possible. The more revolving accounts that you have with a zero-balance, the higher your credit score will climb – which means you get the best of the best in mortgage programs, terms and rates. Once you pay off an account, it may take the creditor 30-60 days to update their records with those of the credit bureaus.
• Stop applying for credit. The more times you apply, the lower your score goes. So – unless it is absolutely necessary – stop as far in advance as you can. Remember: Credit inquires stay on file for two years, but it’s the ones that occur within the most recent year that have the greatest impact.
• Stop spending. Lenders love to see as much cash sitting in the bank as possible – makes you look heavy (i.e., the more cash, the more weight you have to swing credit decisions in your favor) – that’s a good thing. However, you can’t wait until the last minute to deposit money because it looks suspicious – get it in there as early as you can!
• Contact your mortgage broker or lender and find out what they are going to need. Do not let them coax you into pulling your credit. It’s unnecessary and potentially harmful – it only takes one point to knock you out of one program and into another, less favorable one. Just give them the scenario, your credit scores from all three bureaus and ask them what you will need to have in place three months from now. If they ask any questions, be as honest as possible – this should be a very candid conversation. Remember, you are not applying just yet – so this would be an ideal time to lay everything on the table. Your goal is to get as much information as possible so you are fully prepared to apply when the time comes.
The world of credit and mortgage lending is a game that can easily go on for as long as you are prepared. Gather as much information as possible in advance, so you can be sure of getting exactly what you want. If you can’t get the program you most want, then go for the next best thing. Getting approved can be a challenge for anyone, even millionaires – if accounts and credit files are even just a little out of line, your application may be denied.