The Milwaukee Post

By Catherine Jozwik Special to the Post Several experts agree that having a good credit score is one of the main factors when it comes to getting a competitive rate on a mort- gage or a home equity loan. However, those with unfa- vorable credit scores should not be discouraged. Scores can be raised with a little diligence and patience. "Your credit score is real- ly going to impact your (mortgage) interest rate," said Duane Kilby, vice pres- ident of residential and commercial lending for Waukesha's First Federal Bank. Would-be borrowers can obtain a free copy of their credit score through annu- alcreditreport.com. Generally, having a score below 740 might lead to higher mortgage interest rates, Kilby added. "When you look at (home) affordability, that can make a monthly payment higher," he said. Credit dings and boosts Several factors can nega- tively impact a credit score, including late bill pay- ments, debt consolidation (which raises a lender's debt utilization ratio, or reduces the amount of credit available to them), and credit inquiries. "The thing I see that wrecks credit is outstand- ing utility bills," said Darrell Frenzel, owner and mortgage loan originator at Wisconsin Wholesale Mortgage in Milwaukee. Frenzel noted that it's also better to leave a credit card account with zero balance open rather than close it. People should check their credit report annually for any errors, like medical bills, which can also lower credit scores. "It's always good to check your credit report," Kilby said. Not having credit history can also lead to a low credit score. Aaron Kaufman, loan partner with Bank of England Mortgage in Brookfield, recommends building up a credit histo- ry by charging small pur- chases (gas or groceries, for example) to a secure credit card. Being added as an authorized user to another credit card account (such as one of a spouse or other relative) can also help build a solid credit history. Kaufman advises poten- tial borrowers hold off on financing large purchases, such as a car or furniture, as these purchases increase one's debt-to-income ratio. Kaufman noted that he has seen clients increase their credit scores in as short a time as 30 days. To avoid making late pay- ments, for example, set up automatic bill payments online. More than 20 percent down "Anyone can get their credit up if you can put in the work," he said. Having a less-than-stellar credit score, however, does not bar individuals from getting a favorable interest rate, provided they can pro- vide a down payment of more than 20 percent of the home's purchase price. Borrowers who put down less than 20 percent must pay private mortgage insur- ance, or PMI, no matter how high their credit score, Frenzel said. Lenders typically require borrowers-to-be to provide tax and financial docu- ments, among them W-2s and two months' worth of bank statements and pay stubs. Although many mortgage lenders work with borrowers online, Kaufman suggests meeting in person, if possible, to discuss credit scores and other necessary informa- tion when it comes to apply- ing for a mortgage. "If a lender is unwilling to sit down with you, move on," he said. 14 • Milwaukee County Post • February 1, 2019 HOME Before moving day can become a reality, prospective homeowners need to gain knowl- edge about their credit score and how it can affect how much house they can afford and at what rate. Getting your financial house in order before scoring a home Financial jargon can be unfamiliar to first-time bor- rowers. Below, a glossary, gleaned from various sources. 1.Adjustable-rate mort- gage A mortgage with an inter- est rate that changes according to certain dates. 2. Annual percentage rate (APR) The total cost to borrow funds written as a yearly per- centage. APR can include interest rates and other spe- cial fees. 3. Amortization A schedule indicating how a loan will be repaid. An amortization schedule for a mortgage includes the amount borrowed, the length of time in which the loan must be repaid (loan terms) and interest rates. 4. Closing The last step in getting a mortgage. Includes delivery of the home deed, releasing necessary funds and signing loan documents. 5. Credit bureau An agency that compiles and analyzes credit ratings of individuals. Credit bureaus provide this information to lenders, including banks. 6. Credit score A three-digit number that rates an individual's credit based on several factors, including credit utilization and payments made on time. Lenders use a credit score to determine the likelihood that a borrower will pay back a mortgage or home equity loan. 7. Debt-to-income ratio A process that compares a borrower's overall debts to his or her income. Lenders look at the debt-to-income ratio as a way to help deter- mine a borrower's ability to pay back a mortgage or home equity loan. 8. Debt (or credit) utiliza- tion ratio A ratio that compares an individual's total debts to total available credit, and also a tool credit bureaus use to determine an individ- ual's credit score. 9. Pre-qualification A process in which the borrower provides lenders with information including assets, income and debts in order for lenders to estimate the amount of a mortgage they will approve for a bor- rower. 10. Private mortgage insurance (PMI) Insurance required when a borrower makes a down pay- ment of less than 20 percent of a home's purchase price. — Catherine Jozwik, Special to the Post Taking some of the mystery out of financial jargon Credit scores and mortgages 101

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