Home Loan Mortgage Myths
I'm moving into a new house I just bought, and just want to dispel
of some information about applying for a home loan. Some of
the stuff I've read by "experts" in financial magazines such
as Money Magazine and Kiplingers, I now consider rubbish and
urban myth. I'll just cover here what I found was wrong, or
may be wrong in some situations. For the record, I applied for
a home loan with 20%+ down (to avoid mortgage insurance) with
a mortgage lender owned by a major U.S. bank with branches in
the West and Mid-West.
The main myth I wanted to dispel is to close all uneeded unsecured
bank credit lines, such as MasterCards and Visas, since mortgage
lenders will count this against you as a debt, even if you owe
no money. I've read stuff like this, ad nauseum, and is the
farthest from the truth. I am a person a average income, above-
average savings, but also have about 400 credit cards, of which
about 20 are MasterCards and Visas (I did not make a typo here!).
Many of my MasterCard/Visa credit lines are in the $10,000 range
(creditors keep raising my limits). I do have a lot of credit lines,
but owe very little money (about $500 total on them). I've had people tell
me I could never get a home loan because of this. Nonsense! I met
with my mortgage lender, and was very candid about this (that I used
to collect credit cards). They weren't the least bit concerned.
He runs my credit report (their printer runs out of paper printing it)
and saw how excellent my credit was. He was also very impressed with
my ISAAC score (a statistical score that is printed on their credit
reports). Mine was very high. Not only could they care less about
all my open credit lines, they wanted me to apply for their Visa card
(automatically approved with a mortgage). The person I applied with
seemed a bit upset when I refused their Visa card, since I told him
I have enough Visas. But he kept insisting I apply and said just do
what I do with all my other cards (not use them). Probably he got
some sort of added bonus for every Visa account he also opens.
But the fact is, having all these open accounts did not hurt me a bit,
and actually helped me. Reason for this is it showed an enormous amount
of credit responsibility on my part, and that is why credit card issuers
also kept raising my credit lines that I never, or hardly, use.
In any event, if others are thinking about buying a home, now may be a
good time. Interest rates are low, and the housing market seems to be
on the rebound. And if you are in my situation (have enough credit cards
to sink a ship) don't be concerned if you have been very responsible with
them.
I noticed some accounts that I had cancelled showed
up on my credit report when I applied for a home
loan recently. I mentioned this and asked if I
should bring in the cancellation letters. I was
told that not only did available credit not hurt me;
it helps! I remarked that this seemed backward to
me, but I was told that it is definitely a plus to
have unused credit (at least in my situation).