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American Homeowners Association



Don't Ignore Credit as Factor in Owning a Home

"I'll gladly pay you Tuesday for a hamburger today," was Wimpy, the Popeye cartoon character's most famous line. But Wimpy was always empty-handed and hamburger-less, probably because everyone knew about his sloppy attitude toward paying bills on time. Unfortunately, many Americans have a cartoon-like understanding of how paying their bills can affect their chances of owning their first home. According to a recent survey by Fannie Mae, the major mortgage company, half of people surveyed misunderstood the effect of bad credit on their ability to qualify for a mortgage.

Most people are in the dark about knowing how to maintain a good credit rating, Fannie Mae says. They just don't understand the consequences of sloppy bill-paying habits. Indeed, when it comes to being really late, as in "more than 90 days late" three times or more in paying a utility bill, only 41 percent said it would be a major problem. A third, 32 percent, said it would be only a minor problem, and 18 percent said it would be no problem at all.

That's not the reality, unfortunately, and those same people are in for a shock, in the form of higher loan costs, or in the worst case, a rejected application. To avoid finding out the hard way, it's a good idea to request your credit report. The first thing any lender will do is run a credit report on you. If there's bad news involved, you want to be the first to know. That way you can repair your credit before going to bat on your first loan. The second reason to obtain your credit report is to correct any mistakes. Through no fault of their own, one out of every four consumers has mistakes on their credit reports. It can take weeks to correct your credit report, so you're much better off getting a copy of it prior to completing a loan application.

"Misinformation about the relationship between paying bills on time and being able to qualify for a mortgage is of great concern," said Franklin Raines, Fannie Mae Chairman. "As an industry, we've made great progress in knocking down barriers to homeownership. For example, to address the problem of not having enough money for a down payment, the mortgage industry has more widely offered low down payment loans. But the high percentage of Americans who don't connect paying bills late with the potential for problems later when they try qualifying for a mortgage is a new and very disturbing trend."

Happily, the news from Fannie Mae is not all bad from a consumer awareness standpoint. Buying a home is a top priority for 37 percent of non-owners, who say it is either their number-one priority, or among their top two or three priorities. Many Americans who rent are at least taking the right steps toward the goal of homeownership, as in saving to purchase a home. If everyone would just remember to pay their bills on time.

by Cliff McCreedy

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