Why is a mortgage specialist better than a bank? Part 3 – Credit Basics

So I started this (see Part 1 and Part 2) to show the difference between a bank and a mortgage specialist. I have the unique perspective of having been a banker. So what is part 3?

CREDIT BASICS

Bank:
I worked at 3 banks, almost 4 (my work history is on LinkedIN here). All of them had some form of restriction on poor credit. At one, the minimum score was 640, no loans under that, another was 670! And on top of that were debt to income restrictions, one was so ultra-conservative, they were at 36% debt to income! I even mentioned to them that conventional, government, and other mortgage lenders were much higher than that and I received “we don’t care what others are doing, we are are protecting our assets.”

How did they handle collections? At one bank, no collections at all were allowed, none. If someone had a collection, they were unable to get any consumer loan. At another bank, they required all collections paid off. One other mention on collections, there was no way to dispute anything. I think this is a very important distinction. When I was a banker, I had to self-educate myself on credit, the bank was not doing it for me and they definitely were not instructing customers how to improve or change their credit score! I was told that telling them anything more than “fix your credit” was equivalent to manipulating the credit score! That attitude generally led to one and done (they went elsewhere the next time) applicants with lower credit scores. I don’t have proof of this, but I felt that 20% or less of the customers that I dealt with on a daily basis, and were account holders, qualified for a loan from at least one of the institutions and I would challenge any bank on whether they could say they could lend to over 50% of their deposit holders (or do)…

Where did this affect customers? I remember clearly one day telling someone that they had a collection ($29 for something meaningless) and they had to pay that off and show proof before they could apply again with us. After a short rant of “you have got to be kidding me,” he stormed out. The ridiculousness that a collection of $29 (when an overdraft fee was more than that, so hypothetically a bank could cause a checking account collection of even more than that with one overdraft fee!), could prevent you from getting a loan is just really hard to justify. They also supported each other, a bank or check cashing company collection was a non-negotiable issue, the customer had to make that right before we would even consider extending a loan to them.

Mortgage Specialist:

Sorry doctors, medical collections are ignored. Other non-medical collections may require a calculated payment that affect your debt to income. Government loans are more forgiving than conventional loans, which may require you to payoff a number of items as late as at the closing, but either way, collections ALONE should not stop you. Keep in mind, a new collection or nothing but collections on your credit report could affect your score and your score determines rate, what other hoops you have to jump through, and even which program you may or may not qualify for, so it matters a lot in that sense.

Credit repair / counseling is encouraged. If you don’t qualify either for the loan you want or for any loan, you are counseled on what to do, what might boost the score in just 30 days, or what you can do longer term to improve. If it’s bad or poor enough, you are then sent to credit repair. Credit repair is like a muddy old truck going to a car wash, they can clean up your credit and get it shiny new for a mortgage loan. This is very different from going to a normal credit repair that just disputes everything negative, this is instead focused on how to qualify for a mortgage, so the specific things that will improve your presentation for a mortgage loan are being addressed. Be prepared to spend some money and do the work, but it’s worth it. Do it yourself just doesn’t work as well and like washing your car yourself, takes a lot longer! See this for more on other benefits of credit repair!

Credit counseling is priceless. Let’s say for an example you don’t qualify for conventional and the only offers being accepted are conventional, we will simply tell you how to qualify for conventional. It probably takes some work and maybe some money on your part. Typically you have to pay down or pay off something, or acquire credit and use it. Or maybe it’s a matter of showing that someone else pays your co-signed loan, or have them refinance it in their name. The possibilities are endless, but the suggestions are tailor made for you! I see all the time on forums questions about credit, the only way to answer them correctly is to see your credit report and then advise you personally. From taking applications over the years, I can assure you, no matter what service you use to monitor your credit, what you think matters to the lender and what actually does is two different things. We are here to help you make the right decisions now and in the future to qualify for a mortgage loan.

Many have felt roughed over in the process…

One customer came to me dejected that they would never be able to buy a home. This experience actually happens daily it feels like. Their bank had told them that their credit wasn’t good enough, no further explanation. When I looked at their credit, it really wasn’t that bad (could it have been one of those, only above a certain score at the bank scenarios?). With a couple small tweaks, they not only qualified, they qualified for a $0 down loan! Not only did this completely shock them, but they went from the banks’ response of “I have to save and fix my credit,” to “let me get that done in the next month.” A credit re-score then led to closing on a house within 3 months of first application! This is repeated regularly, because this is what we do, we get you from point A (application) to point Z (closing). You may have to do a few steps in-between, but I simply don’t give up…

Next time we will touch on a specific product to help you that the banks simply don’t have…