A Credit Report is required for a mortgage and has costs associated with it.  Some lenders disclose the cost, other’s don’t – never the less it is a cost of doing business.  I require potential borrowers to pay for their own report.  They don’t pay me, they actually pay the credit vendor directly.  I’m not padding the cost of the report to cover other expenses.  It’s actually the exact cost of the report.  The borrower even gets to keep a copy of the report for their records.  It’s actually available immediately after payment via a secure website link.  There the borrower can view/print/save the report for their records.

Now to the benefits for the borrower by investing the small cost of the credit report:

1. Lower total loan costs (your not covering added expenses for other people’s credit reports)

2. Reduced interest rates (lower overall overhead allows us to charge less per loan – a direct benefit passed on to you)

3. An actual hard or soft copy of a REAL Tri-Merged Credit Report with actual REAL SCORES – to use when comparing other lenders.

4. Access to the latest in Credit Optimization Software at no additional cost (For those that need a little tweak to get the best pricing or to just qualify)

The cost of a credit report for an individual is approximately $15. 

The cost of a credit report for a married couple is approximately $22.

Now to the reasons why you may not want to pay for your credit report up-front:

1. You don’t have the money (Probably shouldn’t be applying for a Mortgage then)

2. The other lender you called didn’t require it. (See above)

3. You already know your scores. (There is far more to qualifying and picking a Mortgage than credit score)

Below you’ll find an excerpt from an email chain with a borrower who decided to use another lender because they didn’t want to pay for the credit report.  This is a rarity but certainly has happened before and will happen again.  But I think some of the points made are good enough to publish here.

 Email 1: The Objection

—–Original Message—–
From: C M 
Sent: 12/17/2009 9:28:33 PM
To: Rob Spring
Subject: Re: Mortgage Info From Rob Spring
Rob, 

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit (Not necessarily a hard and fast rule)

There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 30/40. Usually an FHA loan will allow for a higher debt load, reflected in a higher (35/43) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner’s association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example: 

With a 30/40 qualifying ratio:

• Gross monthly income of $3,500 x .30 = $1,050 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.          
• Gross monthly income of $3,500 x .40 = $1,400 can be applied to recurring debt plus housing expenses. (That $1,400 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

With a 35/43 qualifying ratio:

• Gross monthly income of $3,500 x .35 = $1,225 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.
• Gross monthly income of $3,500 x .45 = $1,575 can be applied to recurring debt plus housing expenses. (That $1,575 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

Remember these are simply guidelines (There are exceptions to most rules)

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford.  We look forward to helping you buy your dream home.

In today’s increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you’ve been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you’re likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax’s model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 850.

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let’s you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you.

Before deciding on what terms lenders will offer you on a loan (which they base on the “risk” to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they’re named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don’t consider demographic factors is why they were invented in the first place. “Profiling” was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit — credit scores requested.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

• The individual has applied for credit under several different names (i.e. John Doe and Jonathon Doe)
• Someone made a clerical error in entering or reading information (names, social security numbers, addresses, etc.) from a handwritten application.
• Mix ups with common names. For example, there is likely more than one John Smith living in New York City and often there is the chance that information intended for one John Smith might appear on another John Smith’s credit report as he applies for a mortgage.
• The individual gave an inaccurate Social Security number or the number was misread by the creditor.
• Loan or credit card payments were inadvertently applied to the wrong account.

No matter what the reason, the erroneous information could reflect poorly on your credit file, thus causing approval problems when the time comes to apply for a job or obtain a mortgage. If you find errors, no matter how small, be sure you get them fixed, and make sure that you contact all three credit bureaus with your change.