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One of the most important aspects of your financial life is your credit score. And your credit score is extremely important when it comes to buying a home. Indeed, before you start looking for a home, it is a good idea to check your credit score.

Problems that can arise from a poor credit score

It is true that a couple of years ago, you could get approved for a home mortgage loan with a credit score in the high 500s or low 600s. Now, though, many mortgage lenders refuse to even consider you unless you have a credit score of at least 680. This is because the home mortgage loan crash taught lenders caution — some would say they are even overreacting and denying would-be homebuyers that can make payments.

In any case, if your credit report has negative information in it, it can affect your credit score. Here are some of the items that might cause problems on your credit report — and things that you should take care of before applying for a home mortgage loan:

• Fraudulent accounts. If you see recent accounts opened in your name that you did not authorize, it can be a problem. Not only does new credit affect your score, but it can also look as though you are over-extended — even if you are not. Report fraudulent accounts to have them removed from your credit report.
• Double-reported accounts. When we applied for our home mortgage loan, we found that one of our credit card accounts appeared twice on one credit report. This meant that it looked as though we had two credit card accounts with $1,000 balances, when we only had one. We got that cleared up as quickly as we could.
• Too much debt. One of the issues that affects your credit score is how much debt you are using as a percentage of how much you have available in total. If you have credit cards whose combined limits add up to $10,000, and you have combined balances of $8,000, that can seriously damage your score. Trying getting your debt down so that it is no more than half of your available credit.

You want to be prepared to tell your mortgage lender what you are doing to assuage any credit issues. But in order to do that, you need to be prepared by knowing what’s in your credit report — and what your credit score is — ahead of time.

You can check your credit report and get your credit score via annualcreditreport.com or MyFICO.com.

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On Thursday, President Barack Obama provided a summary of his budget. While full detials have yet to be fleshed out, Congress — and the American people — got a pretty good idea of what President Obama hopes to accomplish. Indeed, he has said that his has a goal to reduce the yearly budget deficit by half by the end of this term in office.

One of the ways that Obama plans to reduce the federal deficit is by raising revenues. He has long said (and Warren Buffett agrees) that the wealthy need to should a little more of the tax burden. One of the ways this may happen is through a new way of figuring mortgage interest deductions on one’s tax return. Obama has suggested that those in the 33% and 35% tax brackets receive a smaller deduction — 28 cents on the dollar, rather than 35 cents on the dollar.

CNN Money reports on the likely effects of a mortgage interest deduction cap:

That would leave people in higher marginal tax brackets of 33% and 35% - the wealthiest Americans - with a smaller benefit from the deduction of mortgage interest, state and local taxes and other items such as charitable contributions.

The move is projected to raise $318 billion over 10 years and fits nicely with the president’s campaign pledge to increase taxes only for families earning more than $250,000. Few, if any middle-income homeowners are in tax brackets of more than 28%.

Dean Baker, co-director of the Center for Economic and Policy Research, a D.C. think tank, said he was impressed with this part of the budget plan.

“It’s a no-brainer for economists,” he said. “Why have taxpayers been [in effect] subsidizing home payments for the highest income people in the country?”

The overwhelming majority of low and middle income people take the standardized deduction when they file their taxes [and] they receive no benefit at all from the mortgage interest deduction, said Patrick Fleenor, chief economist for the Tax Foundation.

“If you live in an inexpensive home or you’re deep in your mortgage and paying little interest, you’re better off taking the standard deduction,” he said.

But homeowners in the highest marginal tax bracket, those earning more than $357,700 a year, get back 35 cents on their taxes for every dollar they spend on mortgage interest. Under the Obama plan, that benefit would be reduced by 20% to 28 cents on the dollar.

The mortgage interest deduction is still there, but it’s not as big. In a way, this kind of makes sense. You don’t want to completely abolish the mortgage interest tax deduction on the wealthiest, but at the same time, there is room for them to have not quite so big a deduction.

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Right now, one of the biggest attacks on President Barack Obama’s foreclosure prevention plan is that it helps “losers” who made poor decisions on their home mortgage loans.

This is not entirely true.

One of the nice things about the Obama plan is that it also benefits those who made good decisions. And it also does some the Bush Administration foreclosure plan didn’t do: It encourages people to be responsible and rewards them for continuing with their mortgage payments. The Bush plan encouraged delinquency, since you couldn’t be helped until you missed three mortgage payments.

Indeed, Real Estate Pro Articles points this out about those who won’t be eligible for help under the new foreclosure prevention plan:

Gibbs pointed out that Obama’s foreclosure plan clearly had exceptions. He said that among those who will not benefit from the program are homebuyers who in the first place were not qualified to take a mortgage loan, homebuyers who were speculating on home prices and borrowers who no longer have sources of income to continue monthly payments.

It is also worth noting that there are refinancing options for those who are not faced with foreclosure. This plan makes it possible for me to refinance my home to a lower rate, even though I am not having anything near like foreclosure trouble. Additionally, preventing foreclosures can help current homeowners maintain their home values. Remember: A foreclosure in your neighborhood doesn’t just affect the “loser”; it affects your home value and your potential selling price as well.

Finally, on a more personal note, I am a little annoyed about this outrage. We have moved past the point where this foreclosure crisis is a product of poor decisions. Now people who made good decisions are in danger of foreclosure through job loss. Unemployment is up, and that is one of the reasons for some of the most recent foreclosures.

The other question I have: Why aren’t these good people more outraged about the “loser” banks CEOs that are fighting for their bonuses and that have been using taxpayer dollars to go on swanky junkets and throw lavish parties? Why the outrage over fellow regular folks receiving some help, but apathy toward the top-down greed that was a major contributor to this whole mess?

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