There are different aspects of the financial picture that are common in what makes a good mortgage loan. All of these elements have a degree of risk to the lender. Mortgage companies judge these risks and assign a credit grade to them. The higher the risk to the lender results in a higher rate to the Borrower. This week we will discuss the credit scores and credit profile and how the lender will look at them.

What is the condition of the Borrower's credit profile? The minimum credit score will vary greatly depending on the loan program and loan-to-value on the loan.

Minor credit dings may be acceptable; however, in the current market, any mortgage late payments can move you into a completely different set of borrowing standards. A single mortgage late can move you into the Alt-A or sub-prime grade of credit.

Credit scores are also a very important part of what a Borrower pays for their loan. A 20-point increase in your credit scores can mean the difference between paying one origination point on your loan or zero points. One "point" on a $100,000 loan is $1,000.

Your lender will pull your credit report and obtain three credit scores. Let's say they are 621, 639, and 673. Most lenders will require a mid-credit score of 640 in order to qualify for a conforming loan amount.

With a middle score of 639, you could be forced to pay Alt-A or subprime rates for one stinkin' point! While this has been the case for the past ten years; the current market has caused lenders to assign tiered costs for scores of say, 620, 640, 660, and 680. A twenty point increase could save you half a point on your loan.

If your target loan amount is over $417,000, your interest rate will increase because your loan will be considered a Jumbo Loan. Jumbo loans are a riskier investment as the higher dollar amount secures a single property for which there are fewer buyers. There are many more $200,000 loans than are $550,000 loans.

Jumbo loans can require a minimum middle score of 720 plus! It will vary by the lender at this point. For a few weeks, interest rates for Jumbo loans were 3% higher than conforming loans. Usually, the difference is .25% to .375% in rate. Thankfully, that is not the case now, but those three weeks were pretty crazy!

When I represent someone for their home loan, I love to be able to refine their credit report so that we get the highest scores.

A six month lead time is optimal. We are all entitled to a free credit report from each of the three main credit bureaus each and every year.

It is crucial to check your credit report every year. It can keep you from becoming a victim of identity theft. Check in at https://www.annualcreditreport.com/cra/index.jsp Be sure to use ONLY this website as any other site can be phishing. You will get your credit report, but not your credit scores.

I recommend that you ask for your reports to be mailed to you. The report will be easier to read. One can ususually only get two out of three reports on-line.

Next week, we will discuss employment history and how a borrower is paid. Different vocations are handled differently in determining income for a home loan.

Call me with any questions! Your comments are appreciated too!