Given that 30% of people have bad or poor credit and some have no credit at all, applying for a mortgage is a challenge for millions of Americans. Those who are familiar with their credit score may not even realize that lenders look at another type of report altogether when deciding to lend to home buyers.
If you’re not working with an experienced local real estate agent, you might not know about this important credit report.
Here are five things you need to know about residential mortgage credit reports and how they differ from standard credit reports.
1. It’s a Consolidated Report
Mortgage lenders require a lot of credit report data before they’re willing to qualify home buyers. Every credit reporting agency covers a different set of data which lenders want to look at in great detail. However, all of that data can’t be easily compiled by a lending officer.
Third-party companies take all of this credit report information and compile it into something that lenders can use for their purposes. This is how your residential credit report is created.
The companies creating reports resell the data created by Equifax, TransUnion, and Experian, the three major credit reporting agencies. For a subscription fee, mortgage lenders get access to this tri-merge report before making a decision about lending to a potential home buyer.
In other cases, they buy a specialized RMCR or “residential mortgage credit report” instead of a tri-merge report from a company that creates them. Regardless of which report they choose, these reports are easier to read than all the different reports that agencies generate.
2. It Contains More Than Just a Credit Record
If you’ve worked hard to build up your credit or repair your credit from previous damage, that can play a powerful role in lowering your interest rate. However, that isn’t everything that appears on your residential mortgage credit report. That report takes a longer view in predicting how you’ll fare with a loan that extends for 15 to 30 years.
Banks and mortgage lenders look at your employment and residential history. They want to know that you meet the guidelines they’ve set to protect themselves from home buyers who default on their loans or end up opening a problem account.
Your residential mortgage credit report will go in depth to create an image of who you are as an applicant to help lenders create a clearer picture of what will happen over time with your loan. Credit reporting agencies have crunched the numbers and they know what to look for beyond a credit score to see how you’ll fare over time.
3. Beware of Legal Records
Building up a strong credit history takes time and many people applying for mortgages have experienced negative marks on their report. Even if you’ve worked hard to bounce back after credit issues, those marks may still remain on your report.
For applicants who know that there’s going to be a legal record, judgment, foreclosure, or bankruptcy on their report, it’s important to get ahead of that before applying. Some applicants include a letter of explanation before they apply for a mortgage to help stave off concerns that lenders might have.
If a legal record shows up on just one report but not the others, lenders will have to verify the accuracy of the data. When this happens, lenders will want an explanation, especially from applicants who haven’t disclosed this information in advance.
4. Check Your Score in Advance
Before you apply for a mortgage, look at your credit scores from the three major reporting agencies. If you only have a short time before you aim to apply for a mortgage, you may not be able to do much. However, paying off some of the smaller debts and accounts on your credit report can be a big help.
The three credit scores from those major agencies will be on your RMCR. Aside from any inaccuracies, they might be different. Each bureau uses a different algorithm to determine creditworthiness. If your scores all vary, know that mortgage lenders will rely on the middle score.
Since a mortgage application causes a hard inquiry on your account and it’s hard to backtrack from a decision made by a lender, it’s important to clear up problems in advance. Even though other factors might be out of your control, you can track down and dispute any inaccuracies or incorrect entries, which happens often to people with a common name.
5. Time May Not Be on Your Side
Standard credit reports update on a monthly basis. Residential mortgage credit reports include manual updates every 90 days. Lenders usually consider a report valid for three months but mortgages that are closed over a longer time period might change if your credit report changes.
If your closing is delayed or if you make any improvements to your credit, lenders could pull another report to get updated information on file for you. Keep an eye on your spending and avoid making any changes to your financial information after you apply for your mortgage. The deal isn’t over until the closing has concluded.
Residential Mortgage Credit Reports Aren’t Your Only Obstacle
When searching for your dream home, your residential mortgage credit report isn’t the only thing you have to worry about. Applying for a mortgage is much easier when the home that you’re applying for is valued at a low and competitive price. With the help of an experienced local realtor in your corner to negotiate for you, you can get the home of your dreams for less than you think.
Contact us today and we’ll pair you with a Clever Partner Agent who knows how to get you the best deal in your region and to advise you on all of your mortgage-related concerns.