How to Evaluate Credit Reports for Mortgage Loans

Although you do not need perfect credit to obtain a mortgage, lenders look at specific information on your credit report to help them decide whether to approve your loan. Additionally, they ignore other information like hospital bills. Before you can make an offer on your dream home, you need to get pre-approved for a loan. To get pre-approved for a loan, you need to know how the banks will look at your credit. Prepare now so you do not experience any unpleasant mortgage application surprises later when you finally find that special home.

• 1

  Look for low debt balances compared to your income. Your debt should not surpass 30 to 35 percent of your income.

• 2

  Look for a consistent history of on-time payments going back 12 to 24 months.

• 3

  Examine the overall blend of credit, which should include a variety of debts such as auto loans, credit cards and personal loans.

• 4

  Compare available credit balance with your current amount of outstanding debt, looking for a 1:4 ratio. For instance, if you have $100 available in credit, you should ideally have used only $25 of that available credit, because $25 represents a quarter of the available balance.

• 5

  Review your recent attempts to obtain additional credit. Creditors want a snapshot of past and present credit history. They do not want a constantly changing picture created by recent applications for credit that may increase debt.