How Trended Data May Affect Your Mortgage

Close-up image of an office worker using a touchpad to analyze statistical data

Many Americans dream of someday owning a home. This dream, for most, is reliant on getting proper funding from a mortgage lender. And up until now, the process was fairly easy to plan for: pay down your credit cards, boost your credit score and save, save, save! This is all about to change with the scheduled introduction of the Desktop Underwriter Version 10 (DU) in September 2016. Change can be unsettling, but the DU Version 10 will provide a quick understanding of your financial standing without having to do much research.

DU and Trended Data

To understand how the Desktop Underwriter will affect buyers, we must understand what it is and how it relates to trended data. The DU is an automated underwriting system that will take trended data into account when you apply for a mortgage. This “trended data” is an expanded view of your credit history. What’s this mean? Lenders will now have access to your chronological credit history for the past 24 months, including:

  • Your credit card balances
  • Your payment amounts
  • Your minimum payments

For those of us who have been focusing on getting rid of our credit card debt one-to-two months before applying for a mortgage, this is big news. Because lenders will now be able to see your payment history, this could establish you as a credit risk. On the flip side, it could also label you as a low-risk candidate. Lenders may see a credit card balance now, but that doesn’t necessarily represent who you are overall, right? It gives them the chance to know you as well as you know yourself.

Transactor vs. Revolver

Trended data enables lenders to easily categorize you into two groups: the transactor and the revolver. You want to be seen as a transactor, which is why paying off your credit card debt a few months in advance of applying for a mortgage might not be the best route.

  • Transactor: someone that pays their entire balance off monthly
  • Revolver: someone that doesn’t pay their entire balance off monthly; they keep a revolving balance every month

You can set yourself up for success by creating a game plan well in advance. Whether that means spending less on your credit card, pulling from savings or paying more than the minimum balance is up to you; but just remember, lenders will be able to see everything from two years ago to present. You want them to know that you’re reliable and low-risk.

Does This Affect Me?

While trended data may seem intimidating, especially for first-time homebuyers, let the fact that it only applies to conventional loans ease your mind! So to all millennials out there, if you’re concerned, make sure you look into FHA (or VA if qualified) loans and their requirements. Or take the opportunity to learn from your trended data on how you can be less of a risk.

For those hoping for a conventional loan, try to keep in mind that buying a home is a big deal. Imagine how big a deal it is for lenders to loan you the money to buy that home. You do your research on homes, your real estate agent, your lender and loans—lenders are doing their research on you. It’s just an added bonus that you get insight into your financial self, too!

Another upside? Your monthly payment information is only one credit risk factor. This doesn’t mean you can go wild and become delinquent on your monthly bills, but rather, that you can relax a little and breathe.

How Do I Know If I’m Low-Risk?

Let’s first establish why it’s important to be a low-risk candidate for a mortgage. Lenders are all about risk…because they have to be. Would you loan someone money that had a reputation of making late payments? Probably not. Lenders are the same way. Your credit score and income, among other things, help lenders determine whether or not it’s a “smart move” to do business with you.

While credit reports are a decent indicator, lenders weren’t able to see the in-depth view they needed. They could see your credit score and balance, but not whether or not you pay your bills in full or keep a balance. This is precisely why trended data will change the game. Lenders will be able to see if you pay your balances in full over a two-year period, which establishes whether or not you’re likely to be a risk. If you pay your balances in full month over month, chances are, you’ll do the same with your mortgage. Hence, low-risk.

Just Ask

Think you could be in better (credit) shape before applying for a mortgage? Come see us and we’ll explain how trended data could affect you and how to set up a roadmap to mortgage success!