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Credit and Residential Home Loans Good credit on your credit score and credit report is absolutely essential to confirming success on a residential home loan application. From a lender's perspective, your credit report and score pretty much say whether you're preliminarily a good risk or a borrower to avoid. When a residential loan can be upwards of $150,000 to $350,000, risk is a big issue. No one is interested in dropping significant funds on a loan only to get a default a few years later. Worse, if the housing market drops, the lender can't even recover the full amount due from the house by foreclosing and reselling. So lenders have a vested interest in making sure borrowers are screened for problems or a lack of financial discipline. While there are hundreds of credit reporting agencies throughout the country, most lenders and financial institutions draw their independent reports from the big three reporting agencies. This includes Experian, TransUnion, and Equifax. As a result, the information on these companies' reports can be critical in the success of a residential loan borrower. It is estimated that between the three companies, the financial history and data of more than 170 million persons are tracked. Getting a copy of your recent credit report doesn't have to cost you money either. By federal law, the reporting companies have to provide each individual one free courtesy copy per year of the data held and reported financially. The residential loan applicant just needs to validate he is unemployed, looking for work, or on welfare. Some states go further and require companies to provide reports once a year regardless of employment status. Additionally, anyone who is denied credit can get a free copy within two months (60 days) of the denial in writing. The Fair Credit Reporting Act controls the reporting of financial information on individuals. This federal law is established as a consumer protection, specifying who can review such information. It also sets the process for challenging the information should an applicant find that the data reported is incorrect. There are some businesses that market their services to help make these corrections for a person, but ultimately it can be done without having to hire someone. You just have to have patience and be able to tolerate bureaucratic processes and paperwork involved. Summary Residential loans come in a variety of colors and shapes, so to speak. The critical factors in obtaining one remain the applicant's credit score and history as well as his earning power and assets to provide as a down payment. Without these two categories taken care of, few lenders are going to want to commit to a related application for a residential loan. The market is full of lender players who can offer different packages, terms, and benefits, but the rules on how to play are generally the same for all lenders. A smart applicant has already done his preparation and pulled all his paperwork together correctly before ever submitting an application for financing.
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