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Today, if your credit score sits above say, 720, you might whiz through the loan underwriting process. As a borrower you can choose from among the lowest-cost, lowest interest-rate mortgages. The lender may ask for relatively few documents and verifications, it may waive mortgage insurance, and perhaps even loan you the amount you need for a down payment.

If instead your credit profile ranges somewhere between "bottom of the barrel" and "looks decent," lenders have created loan products, interest rates, closing costs, down payments, and documentation to fit you, too. But the more risk the lender sees, the more onerous the terms, fees, costs, and paperwork. For each $100,000 borrowed, higher-risk borrowers (especially when they choose higher-risk loans) might pay interest costs of $5,000 to $10,000 more per year, plus an additional $2,000 to $6,000 to cover origination points, fees, and expenses.

That's why it pays to perfect your credit profile. In today's world of mortgage lending, credit profile impacts multiple decisions the lender makes about you and your loan:

  • Size of down payment
  • Qualifying ratios
  • Type and cost of appraisal (e.g., computer generated, drive-by, written form report, or full narrative report)
  • Mortgage insurance premiums
  • Quantity and quality of verifications and documentation (e.g., bank statements versus income tax returns)
  • Interest rate
  • Loan product
  • Escrow requirements
  • Origination fees and closing costs
  • Prepayment penalties

For many borrowers, perfecting a credit profile may require only a few months and minor tweaks. For others, the process may take two years or more, plus a profound restructuring of their spending, borrowing, saving, and investing. The faster you perfect your financial profile, the faster you will grow your wealth—not just through mortgage cost savings, but also through your new attitude toward saving and investing versus destructive spending and borrowing (e.g., credit cards and new car loans).

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Credit Card Management Philosophy

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