Home Loan – What credit score is used in your application?

Your Credit Minute Show Notes:

00:00 What’s up YouTubers, this is Nick Tsoukales with Key Credit Repair. And today’s credit question of the day is gonna be “Which credit score is used when I am applying for a home loan?” So pretty simple stuff, okay.
00:10 So let’s say for example we have a 750 credit score for Experian, okay. We have a 732 for Equifax, and then we have a 740 TransUnion, okay. A lot of people are gonna think, well Nick, it’s the middle credit score. Well, it sometimes is the middle credit score, so that’s not entirely incorrect, but in this case, the middle credit score would have been a 732, which is technically the lowest credit score, okay. So it’s definitely not the 732, okay. I mean it’s definitely not the lowest credit score, and it’s definitely not the highest credit score. A home loan um or a mortgage lender is gonna use something called the median credit score, or middle of three values. So in this case, what you’re gonna look at is you’re gonna stack up the three credit scores, okay. And you’re gonna look for middle of three values. So in this case, we have 740. So this is obviously the lowest, this is the highest, and this is the middle of three values.
01:01 So again guys, if you’re pulling your credit score, wondering which one is used for a home loan, it’s always gonna be the middle of three values. The credit score that you need for a home loan is always gonna be a FICO score, and the place to get that FICO score, aside from a mortgage lender is gonna be myfico.com.
01:15 Guys have a great day.

Average Credit Score for Home Buyer Mortgage Loans: 2017 Update

According to Ellie Mae’s %22Origination Insight Report,%22 that was the average credit score among home buyers that went the mortgage loan route in April of 2017. Any credit score of 700 or above is typically considered a %22very good%22 score, characteristic of someone deemed to be a good consumer. When it comes to credit scores, higher is always better, and higher scores typically qualify consumers for lower home loan interest rates. This can represent a significant long-term savings on either a 15- or 30-year mortgage.

According to Ellie Mae’s “Origination Insight Report,” that was the average credit score among home buyers that went the mortgage loan route in April of 2017. Any credit score of 700 or above is typically considered a “very good” score, characteristic of someone deemed to be a good consumer. When it comes to credit scores, higher is always better, and higher scores typically qualify consumers for lower home loan interest rates. This can represent a significant long-term savings on either a 15- or 30-year mortgage.

Average Credit Score for Home Buyer Mortgage Loans” src=”http://keycreditrepair.com/wp-content/uploads/2017/07/trident-mortgage-group-mortgage-loan-approval-with-keys-960×350.jpg” alt=”Average Credit Score for Home Buyer Mortgage Loans”

Home Buyer Credit Scores Explained

While the 722 credit score is the average of all home buyers that sought a mortgage loan in the month of April 2017, the Ellie Mae report’s data analysis extends beyond just this. For instance, it includes credit score data based on the types of mortgages that were sought in the particular month. The average score for those who bought with a conventional mortgage was 753, for those who bought with an FHA loan, 684, and for those that purchased with a VA loan, 708.

Buying a Home with Good or Poor Credit

While the 722 number was the average credit score for purchasing a home in April 2017, that’s not to say that those with lower credit scores that fall into the %22good,%22 %22fair%22 or %22poor%22 range would be unable to qualify for such a loan. However, if they are approved, their credit score will likely reflect the interest rate that would accompany their home loan. Generally speaking, the higher the credit score, the lower the interest rate. Over time, the savings can add up. In fact, consumers with good credit and low interest rates may save tens of thousands of dollars over the course of a home loan tenure compared to consumers with fair credit and high interest rates.

While the 722 number was the average credit score for purchasing a home in April 2017, that’s not to say that those with lower credit scores that fall into the “good,” “fair” or “poor” range would be unable to qualify for such a loan. However, if they are approved, their credit score will likely reflect the interest rate that would accompany their home loan. Generally speaking, the higher the credit score, the lower the interest rate. Over time, the savings can add up. In fact, consumers with good credit and low interest rates may save tens of thousands of dollars over the course of a home loan tenure compared to consumers with fair credit and high interest rates.

So if you’re among the consumer base with a credit score that may be on the bubble of getting approved for a home loan or just want to boost your score to earn a better interest rate on a home loan, you might be wondering what you can do. Here’s a look at some credit repair tactics to think about:

Pay all bills on time. Late payments can cause your credit score to take a hit, especially if you’re regularly doing it. Set reminders and alerts, or arrange for auto bill pay if you can. Pay down debts: Try to always keep your debt-to-credit ratio, or credit utilization, at about 30 percent for a better score. For instance, if you have a credit card limit of $10,000, try to carry a balance of no more than $3,000 at once. Reduce your debt by paying off high-interest loans and credit cards first. Check your credit report for errors.

Pay all bills on time. Late payments can cause your credit score to take a hit, especially if you’re regularly doing it. Set reminders and alerts, or arrange for auto bill pay if you can.
Pay down debts: Try to always keep your debt-to-credit ratio, or credit utilization, at about 30 percent for a better score. For instance, if you have a credit card limit of $10,000, try to carry a balance of no more than $3,000 at once.
Reduce your debt by paying off high-interest loans and credit cards first.
Check your credit report for errors.

Alternative Credit Scoring Models

Let’s say for a moment that you presently qualify to purchase a home. You’ve got a good job with substantial income, you’ve got more than enough for a down payment in savings and you have little to no current debt. The one thing that’s holding you back, however, is your FICO score.

Many would-be homeowners and many consumers in general run into this sort of conundrum every day – they’re otherwise ideal consumers if not for a past credit mistake that is still lingering. And in many cases, it’s these mistakes that are causing mortgage applications to either be denied or accepted with high interest rates.

The good news is that this could soon be changing when it comes to the mortgage lending process, as there’s been a recent push for government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac, to consider alternative scoring models.

Alternative Scoring Models

Back in December of 2015, legislators introduced a bill in the U.S. House of Representatives that would permit Fannie Mae and Freddie Mac to use credit scoring methods aside from the FICO score when it comes to loan purchasing. The idea behind the bill is similar to the hypothetical scenario detailed in this article’s intro – it would give consumers an opportunity to buy a home who would be otherwise qualified if not for a poor FICO score or lack of a credit score altogether.

The bill is still in limbo, but the thought that an alternative credit score could soon be used by GSEs seems to be gaining momentum. According to reports, Freddie Mac representatives have already been considering several alternative credit scoring models.

Improving Your Credit Score

In the meantime, if you’re a consumer in the market for a home or similar large purchase but your credit score isn’t up to snuff, it’s always a good idea to take the initiative to improve it, whether GSEs have yet to use alternative scoring models or not. Here’s a look at some ways to get your FICO score back up to good or excellent status:

Pay bills on time: Set reminders, alerts or automatic payments to make sure that you’re not late on anything. Delinquencies and bills that go to collections can cause your score to take a big hit.
Reduce your credit utilization ratio: Say you have $10,000 worth of available credit, but are in debt $7,000 or so. You’re using 70 percent of your credit utilization ratio, which can cause your credit score to dip. For a better score, work to get your utilization ratio at or below 30 percent.
Don’t move debt around – pay it off: Focus on paying off high-interest accounts first so that you’ll save more long-term.
Check your report: One of every five Americans is estimated to have some sort of error on their credit report. If you don’t check it, you’ll never know if your score is low for the wrong reasons. Hence, it’s important to check your report at least once a year and immediately dispute inaccuracies.

Finally, it’s important to be patient. Credit repair doesn’t happen over night, it takes months of persistence and good consumer behavior. So be patient and stick to the credit repair plan that you’ve decided on.

New Mortgage Rules – What You Need to Know

When you apply for a car loan, new credit card or special financing through some other entity, approval or denial is usually granted in a matter of minutes. Simple enough, right?

But if you’ve ever purchased a home before, you know that this is hardly the case when it comes to a mortgage loan. In fact, “simple” is probably the last term that many people would use to describe the process.

Yes, home loans are the exception to a lot of the credit approval norms. There’s pay stubs, bank statements, credit reports and more involved in the home buying process, so much so that it’s not uncommon for 30-45 days (depending on what type of mortgage you’re applying for) to pass before getting approved or denied for the loan. In large part, you can thank the baby boomers generation for the tedious process that is getting a home loan these days, as the much more relaxed process from year’s past resulted in the housing fallout and economic recession in the mid to late 2000s.

Anyway, there’s now hope for a smoother mortgage process thanks to the Consumer Financial Protection Bureau (CFPB) and some new disclosures that have recently been instituted. Here’s a look at the new rules and how they may offer hope for a better mortgage process moving forward:

New CFPB Disclosure

The new CFPB disclosures took effect on October 3 and aim to smooth the mortgage process in two ways:

It cuts the number of disclosure forms in half: Instead of having to take out four forms, many of which just present the same information over and over again, borrowers will only have to take out two – the Loan Estimate and Closing Disclosure. This is intended to present information to borrowers in a more simple, easy-to-understand manner than before.
Extended review time: Previously, borrowers only had 24 hours to review mortgage documents. This timeline now increases to three days. This enables borrowers to get more thorough answers to any questions they may have about the mortgage process and make changes if necessary. The only disadvantage to this new part of the disclosure is that any last-minute changes will slow down the process. For instance, if there’s a change in any of the documents on the day of closing, the clock will reset and the home won’t be able to close for another 72 hours, not only delaying the sale of the home, but potentially jeopardizing any interest rate locks.

While the new disclosures are intended to make the mortgage process smoother and easier to understand, experts warn that it may take time for real estate professionals to get up to speed on these new rules and regulations, so be patient at first. But in the long run, it’s likely to make the process a lot more transparent and streamlined for borrowers.

CAIVRS – Will This Report Stand Between You and Your Dream Home?

Sudden roadblocks when you are trying to get all your ducks in a row to buy a home can be frightening and disheartening. And, some barriers can be bigger than others and can make it nearly impossible to fulfill your dream of home ownership. The best thing you can do is learn about your personal credit situation and what lenders are looking for. This way, you are prepared before you lose money on mortgage seeking costs and have a better chance of getting approved.

What is CAIVRS and Why Does It Matter?

CAIVRS stands for “Credit Alert Verification Reporting System.” It’s a federal database that keeps track of everyone who has defaulted on a a loan, had a loan foreclosed or is currently delinquent on a debt that is owed to the federal government. Debts that can get you on the list include Small Business Administration loans, Federal student loans, Veterans Administration home loans and FHA loans. If you are currently on the list for bad debt, you are not eligible for FHA mortgages. And, other lenders have also begun using the system and will deny a loan to someone who is on the list.

How Can I Find Out if I Am On the List?

Entries on the CAIVRS database are one of the very first things that a potential lender will look for. So, if you are listed, you will find out right away when you start your search for a mortgage and can avoid paying fees for a loan that you will not qualify for. You can also call HUD directly to find out if you have a loan that is listed. If you have a foreclosure under an FHA mortgage, you will appear on the CAIVRS list for three years after HUD pays the insurance claim to your lender. Because of this, it may be more than three years before the entry disappears; if HUD takes five months to pay, the clock will start counting down then. Also, if you declare bankruptcy and include your home, the bank may sit on the claim before filing.

What If I’m on the List and I Shouldn’t Be?

As with any database, there is the potential for errors. If you had a bad debt that landed you on the list, it’s possible that your entry may not be removed when it is supposed to be. If you find out that you are listed erroneously, you can get off the list by contacting the FHA. The FHA will request documentation showing that your debt is paid or that it is far enough in the past that it should not disqualify you from a loan.

An entry in the CAIVRS database may slow down your progress to owning a home, but, it doesn’t have to be the end of it. Find out when your entry is due for removal. Circle that date on the calendar and start thinking of what can make you an even more appealing borrower in the meantime. Can you save more toward a down payment? Pay down other debts? By looking at your borrowing history as a whole, you can make yourself stronger and increase your chances of getting the loan you want.

Credit Preparation – Home Loan

Credit Preparation – Home Loan: Home ownership is a dream come true for most Americans, a true milestone that is met with great pride and sense of accomplishment by the new owners. But getting to the closing day and getting the keys is a lot more complicated, cumbersome and potentially frustrating than it seems. What’s more is that there’s a lot that can go wrong during the house hunting process, making the ultimate goal of home ownership more pipe dream than reality in some cases.

Perhaps the most important thing when it comes to home ownership is getting a mortgage. But getting a home loan also has the potential to be one of these aforementioned cumbersome and frustrating milestones along the way. With that said, here’s a look at seven important steps you’ll need to follow in getting a loan if your ultimate goal is home ownership:

Step 1: Check Your Credit Score

In order to get a home loan, you first have to qualify for it. And when it comes to home loans, your credit score is the lifeblood of whether or not you’ll get approved. For instance, credit scores below 620 will most likely not qualify for a home mortgage, as this falls in the “bad” to “average” range. Even if a lender will give you a loan with a credit score this low, you’ll likely be paying out the nose in interest, compared to if you had “good” or “excellent” credit standing. Your credit score leads us to our next step…

Step 2: Repair Your Credit Score

If your credit score is below 620, you’ve got some work to do before you can get approved for a mortgage. And even if your credit score is in “good” standing, improving it into that “excellent” category will only make you a stronger consumer and likely secure you a better interest rate. There’s a lot you can do to improve your credit score – and in a fairly short period of time too. The biggest thing you can do is to ensure that you’re paying your bills on time. Secondly, pay down credit cards so that you’re only using 30 percent or less of your total credit allotment. Additionally, it never hurts to carefully comb over your credit history to make sure it’s accurate. Recent reports state that there are discrepancies on the majority of people’s credit reports.

Step 3: Do Your Loan Homework

Got your credit score back in shape? Now it’s time to decide which loan is best for you. If you’ve got 20 percent to put down, a fixed-rate mortgage is probably best for you, as once you lock in your rate, you can rest assured it will never increase. An adjustable-rate mortgage might be in your best interest if you plan to move within a few years. And then there’s the matter of either a 15- or 30-year loan. You’ll pay less each month on a 30-year loan, but much more interest when compared to a 15-year loan. Don’t have 20 percent to put down? Consider an FHA loan, where you only have to put down as little as 3.5 percent, but pay other fees along the way.

Step 4: Get Pre-Approved

Pre-approvals are essentially tentative commitments from a lender based on how much of a home loan you can afford. We’d recommend you get this before beginning to house hunt, as it shows sellers and realtors that you’re a serious buyer, as well as how much you’ve been approved to borrow.

Step 5: Prep Your Paperwork

Back in the day, it was easy to get a home loan. Now, it’s a lot more tedious, so get ready to pull your tax returns, bank statements, pay stubs – and all in addition to your income, assets and debts. Lenders will be asking for this up until closing to make sure nothing suddenly changes.

Step 6: Lock in the Rate

If you like the interest rate a lender is offering, lock it in! Many will offer consumers the opportunity to lock in the rate for up to 45 or 60 days. Interest rates are really good right now, so this is definitely something that consumers should take advantage of when the time comes.

Step 7: Don’t Mess it Up!

The final step to getting a home loan is a stern reminder not to mess anything up! To be blunt, don’t do anything that’s going to mess up your credit profile, like take out a huge loan on a luxury sports car or up and quit your job. Don’t even do something as seemingly harmless as apply for a new credit card. Even something so miniscule could throw off the whole deal.

As we mentioned, getting a home loan can be tedious. But going into things with a clear understanding of what’s required and what you’ll need to do can make things run more smoothly and efficiently.

Bad Credit Aftermath – How Much it Can Cost You?

How Much Does A Bad Score Really Cost You?

Common sense will tell you that having a good credit score is much better than having a poor credit score, as far as loan approval and interest rates go. But do you really know how much a bad score can really cost you? You might be surprised.

Take a 30-year mortgage for example. Now take a good credit score (680-699), an excellent credit score (740+) and a poor credit score (620-639). Here’s a look at the breakdown of possible costs over the course of a hypothetical $200,000 home loan:

Excellent credit (4.025 percent): A likely monthly payment of $958, which equates to an $11,493 annual cost and a $344,798 lifetime cost.
Good credit (4.974 percent): A monthly cost of $1,070, annual cost of $12,846 and lifetime cost of $385,368.
Poor credit (5.418 percent): A monthly cost of $1,133, annual cost of $13,598 and lifetime cost of $407,950.

As you can see, having an excellent credit score can save you up to $113 per month and $40,591 over just having a “good” credit score over the course of a 30-year mortgage. And an excellent score can save you $175 per month and $63,173 over a “poor” credit score. Hence, taking measures to repair credit before financing such a significant purchase is crucial to your short- and long-term finances.

So just what are some credit tips to repair a poor score?

On-time payments
Keeping debt within 30 percent of your total credit allotment
Having a diversity of different credit
Having a lengthy credit history

As if having a favorable credit score wasn’t important enough, the above examples certainly place even more significance on the importance of credit repair and debt management if you’re in a financial bind. As the above examples show, a good credit score could mean the difference of tens of thousands of dollars over the course of a long-term loan. That’s a lot of money that you surely could put toward other purchases and a big incentive to take measures to improve your credit score today.

For more information on how to repair your credit, please contact our office at 617-265-7900 or request a free consultation below.

Bad Credit Mortgage – Credit Tips

If you have bad credit, you are far from alone. Job loss, medical expenses, divorce and other factors can affect many people and drag down their credit scores. If you have been working to get back on the right path so that you can invest in a home, your bad credit does not necessarily have to hold you back from your dreams.

Work on Improving Your Credit

Look over your FICO score and your credit reports to see which areas you can improve most quickly. For instance, eliminating inaccurate negatives and ensuring that all of your accounts that are in good standing are on your report can increase your score without you having to do a thing. Consolidating loans or opening new lines of credit can help or hurt, depending on your situation. Talk to a credit repair professional for advice.

Look for a Lease to Own Agreement

In a lease to own agreement, part of your rent payment each month goes toward the purchase of the property. Many landlords are more willing to work with people with so-so credit than banks are. The leasing period usually lasts about three years; during this time, work to increase your credit score so that you qualify for a regular loan when the time comes.

Make a Large Down Payment

With a sizable down payment, you can often get more attractive terms. If you have an inheritance, a relative willing to help with the funds or another way of getting 20% of the cost or more, see if this can help you get a loan.

Look for Owner Financing

An individual homeowner may be willing to overlook a poor credit history if you can demonstrate that you have improved your spending habits. Getting a Bad Credit Mortgage can be avoided. Usually, these arrangements involve a higher rate of interest; this can work well as an investment for the current owner while giving you access to homeownership.

Another alternative is to see if you can find a seller willing to take back a mortgage. This would, like the arrangement above, make them your lender. It is often easier to get an arrangement like this with poor credit than it is to work directly with a bank.

No matter which of the above strategies you employ, continue to work to improve your credit score. Pay every bill on time every month. Open new revolving and installment credit so that you can build a new history of on-time payments. Pay down any loans so that you can improve your debt to income ratio. Once your credit rating improves, you will get opportunities to refinance at better rates, keeping more of your money in your pocket. Remember that it’s a marathon, not a sprint. While there are ways to get a mortgage now with bad credit, working to improve your situation means a better deal for you over time.

Tag: Home Loan