Improve your credit . . .

. . . So you can borrow from a bank, not a mortgage broker

“I’d rather spend a year—or even two years—working with you to improve your credit than save time and send you to a mortgage broker. Follow my suggestions, and you’ll be able to get that mortgage from a real bank at their regular rate.”
—Tami Aikens, Homeownership/Foreclosure Counselor, Bridge Street Development Corporation

According to Ms. Aikens, it is better and cheaper to get a mortgage from a bank than a mortgage broker. If a federally insured bank is offering a standard interest rate of, say, 5% on a 30-year mortgage, a mortgage broker has the right to increase that amount and may charge you 2% more for the same 30-year mortgage.

Most prospective homebuyers go to a mortgage broker because they know—or they believe—they can’t qualify for a mortgage from a bank. Ms. Aikens would advise trying for a bank loan before going to a mortgage broker. “I’d say, let’s speak to one of my banking partners, and they will tell me why this person would or wouldn’t qualify for a mortgage from a bank.”

If you have already been turned down by a bank, Ms. Aikens wants to know why. If you don’t know the specific reason, she’ll help you find out. (See Note below.) Maybe the reason was a poor credit history—usually caused by late payment of bills—which is a common problem. If that’s the reason, she’ll suggest you work with her on improving your credit history for the next six months or year to see if you can raise your credit score enough to qualify for a bank loan.

“Pay your bills on time, and it automatically goes on your credit report and improves your credit history,” she says. Over the next year, maybe you get a second job and pay off a credit card bill or make an arrangement with a major creditor. That creditor then writes to the credit bureau saying you’ve cleared the debt. “You should also consider paying your bills electronically,” she advises, “so that all of them will be paid on time—between the first and fifth of the month.” All those things can improve your credit score.

Ms Aikens teaches a four-week Financial Literacy course at Bridge Street, and she ends every week by emphasizing the importance of a realistic budget. “That’s what every first-time homebuyer needs to do before applying for a loan or a mortgage: sit down and make a budget,” she says. “When you get the final decision from the lender, you need to know exactly how your family is going to make this mortgage work.”

Mr. and Mrs. Jenkins, for example, have already made some changes in their lifestyle to improve their finances. When Mr. Jenkins first came to Bridge Street, his wife did not work outside the home; now she does. They also have a renter, who rents a two-bedroom apartment in their brownstone. It’s a good thing to have in tough economic times, but Ms. Aikens cautions that homebuyers should not depend on a tenant’s rent to cover the monthly mortgage payment. Tenants may pay late or get behind in the rent. “You should never put yourself in the position that if the tenant doesn’t pay the rent, you can’t make your mortgage payment,” she says.

To take a look at Bridge Street’s course offerings, including the First-time Homebuyer’s course, click here. [Insert link]

Note: Since the Equal Credit Opportunity Act was implemented in 1974, federal regulation: (1) prohibits a credit-scoring model that considers race, religion, national origin, sex, or marital status; (2) requires that credit-scoring models be empirical and statistically sound; and (3) mandates that if a lender denies a loan application, the lender must give the borrower specific reasons for the denial, such as "too many delinquencies of 60 days or greater.”(Simply saying the borrower was denied a loan because of a “low credit score” is not specific enough.)