Understanding Mortgage Lender Policies on Missed Payments
Mortgage lenders closely examine your payment history, particularly for the past 12 months. A single missed payment can significantly impact your chances of approval. However, providing a valid reason and supporting documentation can mitigate the adverse effects. In one instance, a client missed several payments due to caregiver responsibilities for her elderly parents. By explaining this situation and providing evidence of the situation, she was able to overcome the missed payments and secure mortgage approval.
Reviewing Your Credit Reports
It is essential to review your credit reports annually. Each year, you are entitled to a free copy from all credit agencies, and it is crucial to verify the accuracy of the information. Incorrect or missing information can skew your credit score, which directly affects your mortgage application. If you find any discrepancies, it is imperative to write a letter to the credit agency to dispute the information.
Clarifying What Constitutes a Missed Payment
Not all missed payments will be reported to credit agencies. Generally, late payments are only reported if they are more than 30 days overdue. Even then, lenders may not report minor delays like a one or two-day late payment. It is important to check the policies of individual lenders regarding missed payments. Understanding these policies can help you manage your financial responsibilities more effectively.
Providing Explanations for Missed Payments
If you have missed payments, it is advisable to provide a detailed explanation and supporting documentation to your lender. Some valid reasons for missed payments include unexpected household expenses, illness, or unforeseen circumstances. In the case of our client, she missed payments due to her parents' roof repair needs. Providing a letter and documentation helped her lender understand her situation, leading to a positive outcome.
Getting a Handle on Your Credit Score
While credit scores are a critical factor in mortgage approval, they are not the only consideration. Free credit score apps can give you an idea of your current standing. Additionally, you can call prospective mortgage lenders to understand their minimum credit score requirements. It is important to note that new mortgage applicants face more challenges as they have no track record of paying back a mortgage. However, a larger down-payment can improve your position as it demonstrates a commitment to the loan.
In conclusion, understanding mortgage lender policies on missed payments and actively managing your credit situation can improve your chances of successful mortgage approval. By providing clear explanations and supporting documentation, you can navigate potential obstacles and secure the home you need.