Perhaps you are on the market for your first house. Some well intentioned friend over a couple of beers might have mentioned how mortgages are like auto loans, just, like, bigger man. Unfortunately for you and your friend, it is not that simple. Buying a Nissan Altima is really nothing like buying a home other than the exchange of money. Mortgages tend to require much more paperwork, and are in fact much bigger than car loans, leading to even closer scrutiny of your credit history.
When a lender is deciding whether or not to approve you for a loan, he usually starts with an analysis of your credit. For an auto loan, lenders usually look at just one of your credit reports (the major credit bureaus being Experian, Equifax, and TransUnion) to determine whether or not to approve the loan. When approving a mortgage, lenders will analyze every detail of all three credit reports. They do this in order to try to find any discrepancies in your credit history that might indicate you defaulting on your mortgage loan.
By that same token, any discrepancies that do show up hurt a lot more when looking for a mortgage than for an auto loan. Things like bankruptcies and foreclosures will stay on your credit history for at least 7 years. Lenders are unlikely to loan out money to anyone with such major credit issues, especially for a loan as large as a mortgage. Auto loans lenders still care about your credit history, but are less likely to deny you a loan for issues in your credit.
The amount of cars manufactured and sold every year vastly outweighs the amount of houses built and sold every year. Because of that aspect, the auto industry is much more willing to take risks on people with poor credit history, because the their total sum of sales will be high. The housing industry faces a greater risk of lending money to people who can’t pay it back because the industry isn’t propped … Read the rest...