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.

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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.

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:

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.

New Credit Scoring Models Won’t Work if Lenders Ignore Them

Chances are you’ve already heard some of the rumblings regarding the way new credit scoring models work. To recap, some of the newer models exclude any medical debt that consumers owe as well as the likes of settled delinquencies and collections. Under new scoring models, tax liens and civil judgments have also changed in the ways they are reported – all for the betterment of consumers. In a perfect world, this is great news for the consumer, as individuals are likely to see a boost in their credit scores and qualify for lower interest rates on long-term financed purchases like auto and mortgage loans. As a result of these changes, credit score boosts may be enough to qualify consumers that otherwise wouldn’t have even qualified for a loan. But there’s one problem – lenders aren’t embracing them to the same degree that consumers are. In fact, some are using old formulas to determine consumer risk that don’t exclude everything that we listed above.

Chances are you’ve already heard some of the rumblings regarding the way new credit scoring models work. To recap, some of the newer models exclude any medical debt that consumers owe as well as the likes of settled delinquencies and collections. Under new scoring models, tax liens and civil judgments have also changed in the ways they are reported – all for the betterment of consumers. In a perfect world, this is great news for the consumer, as individuals are likely to see a boost in their credit scores and qualify for lower interest rates on long-term financed purchases like auto and mortgage loans.

New Credit Scoring Models Won’t Work if Lenders Ignore Them. New Credit Scoring Models Won’t Work if Lenders Ignore Them”

As a result of these changes, credit score boosts may be enough to qualify consumers that otherwise wouldn’t have even qualified for a loan.

But there’s one problem – lenders aren’t embracing them to the same degree that consumers are. In fact, some are using old formulas to determine consumer risk that don’t exclude everything that we listed above.

Why Aren’t Lenders Using New Scoring Models?

So just why aren’t the majority of lenders using the new scoring models and instead relying on old FICO scoring formulas? That’s a good question, and it’s one where the answer varies based on the lender. For instance, some lenders have stated that they’re too small and the older formulas are a better indication of potential consumer risk. Other lenders, conversely, say that they’re too big to institute changes in how they determine consumer risk and that any change this significant could be disruptive to the way that they do business. Then there are the lenders who are just simply putting off integrating such formulas.

Whatever the reason, the true loser is the consumer in all of this. In a way, lender refusal to use new credit scoring formulas discourages responsible credit behavior. Think about it: Why should a consumer be motivated to pay off a collection if a settled collection is still going to be counted against them on their credit report and credit score? The refusal of lenders to adapt to the current times and the newer scoring models could actually prevent consumers from enacting credit repair strategies.

Taking things a step further, the lender would also benefit by adopting these new scoring formulas. That’s because weighing consumers under the new scoring formulas would likely earn them new customers that may not have qualified for a loan before. New customers and more customers equal more revenue for a firm. Isn’t growing to become more profitable the goal of any business, big or small? Credit scoring is changing to become more consumer-friendly. Lenders need to be changing too. It should be a win-win for both parties involved.

How to Build Your Credit Score Back Up After Foreclosure or Short Sale?

How to Build Your Credit Score Back Up After Foreclosure or Short Sale?

Credit Score, Foreclosure, Short Sale. Credit Score after Foreclosure or Short Sale. So you’ve foreclosed on a home or had to sell for less than what you owed on the home? You probably think you’re doomed as a consumer moving forward. And while a short sale or foreclosure is never something that you want to have on your credit report, neither is a be-all, end-all when it comes to purchasing power. However, it should go without saying that either a foreclosure or short sale will require consumers to enact some credit repair.

How to Build Your Credit Score After Foreclosure or Short Sale

Credit Score after foreclosure. Just how to you go about rebuilding credit after a short sale or foreclosure? Here’s a closer look:

Rebuilding Credit After Foreclosure/Short Sale

The first thing that you should do after a foreclosure or short sale is put it in the past. Yes, it happened. Yes, it’s unfortunate. Yes, it’s not going to look great on your credit report and it’s going to hurt your credit score. But like we said in the opening, it’s not a be-all, end-all. So put it in the past. It’s over with. While the short sale or foreclosure will stay on your credit report as a negative part of your history, that doesn’t mean that you can’t build positive activity beyond that. The goal for a consumer following a short sale or foreclosure is to build positive activity to make the negative on the credit report look like nothing more than a blip on the radar. Here’s how to do it:

  • Immediately work to start (or continue) at least three positive lines of credit: Whether it’s a secure credit card, personal loan or some other type of account, these lines of credit are all ideal opportunities to build positive activity. Since the FICO score weighs consumer behavior on making on time payments, credit history and credit utilization, you can put the negative of a foreclosure or short sale in the past by building positive activity with at least three accounts. Perhaps you have a healthy account or two opened? Great! Keep up the good work with it.
  • How to build positive credit: Like we hinted at in the last bullet point, the best way to build positive credit is to make on-time payments and keep balances low.

If you follow the two steps above following a foreclosure or short sale, it’s not uncommon to see a significant improvement in your credit score within as little as six months. In fact, it’s not out of the realm of possibility for those with credit scores in the low 500s to see their scores increase into the high 600s or even the 700s after a foreclosure or short sale by building positive activity. Just remember, it’s not a quick fix – it take a little bit of time.

Getting preapproved for a mortgage loan

Spring has sprung, and beyond just the greening of grass, warming temperatures and longer days, it’s also a period of the year that sees a significant uptick in real estate activity. Yes, with an increase in overall inventory come spring, the season is an ideal one for buyers on the hunt for their next home. But before you can buy, you need to get preapproved mortgage. Unfortunately, getting preapproved is easier for some consumers than it is for others. Some consumers may need to enact some credit repair tactics to get their credit score where it needs to be for home buying

Improving Credit Scores for Preapproval

If your credit score isn’t up to snuff and you don’t want to wait months to repair it, there are some things that you can do now that may improve your score faster, assuming that your score was dinged because of something minor, like a late payment. More sever credit mishaps like defaulted payments, bankruptcies and foreclosures will obviously require much more time for consumers to repair, but there is hope to eliminate something minor like a late payment that could be preventing you from getting preapproved for that mortgage loan. Here’s what to do:

  • Act quick: Start by contacting the company that reported the late payment and explain the situation. Perhaps you thought you made the payment, but there was an online bill error. Or maybe it was an honest mistake on your part and you didn’t pay the bill in full. Regardless of who – or what – is at fault, come clean and explain the situation. You may even choose to enact a one-time goodwill intervention, where a company will review the case, analyze your credit and make the call on whether or not to reverse the decision. Remember, lenders want to keep your business, so if you work together with them, your chances are good.
  • Contact the credit reporting agencies: If you don’t get anywhere with the lender, consider writing the credit reporting agencies. Explain the scenario to them, and they’ll conduct a 30-day investigation to determine whether or not the lender’s decision should be reversed. This method may take a little longer than working with the lender, but if the agency rules in your favor, it can help improve your FICO score to the point where you can get preapproved.

Unfortunately, some mortgage consumers don’t have great credit and won’t be able to fix their issues by contacting either their lender or the credit reporting agencies to have the issue resolved. If this is the case, the consumer’s best bet is to start establishing good financial behavior. This includes making on time payments and keeping low balances on credit cards, just to name a few.

Fannie Mae Deepens Credit History Checking

Like most Americans, you’ve accrued some credit card debt. You’re paying it off, but mostly sticking to just making the minimum payments so that you’re able to meet your other financial obligations. No big deal, right? Sure, you’ll pay more in the long haul because of interest, but credit card companies set minimum payments for a reason and you’re still making your monthly payments on time. Noting all of this, and considering that your credit score and credit history is in pretty good shape, you figure now is the time to apply for that home loan.

Surely you’ll be approved on your credit history and creditscore , right?

Not so fast.

Fannie Mae, the entity responsible for the issuing of government mortgage loans, is digging deeper into the credit history of applicants beyond just their credit history and credit score. That’s right, Fannie Mae is now taking into consideration how applicants are managing their debt as it pertains to approving or denying mortgage loans.

 

Fannie Mae’s trended credit history check

The latest version of Fannie Mae’s underwriter software is designed to more carefully analyze what it refers to as “trended credit data,” or details about how consumers are specifically managing their debt. Instead of just analyzing whether or not consumers are making their payments on time, the new software version also takes into consideration the following:

  • How much consumers are paying monthly toward balances.
  • The frequency that they are making their payments.
  • Their ability to properly manage debt overall.

For instance, consumers just making the minimum payments on their credit cards aren’t going to be seen as favorably as consumers making more significant payments toward debts or consumers that pay off credit cards each month. This new judging system, in turn, could prevent mortgage applicants from being able to buy a home. Arguably most alarming about these new standards is that Fannie Mae offers government-backed home loans to help make housing more affordable for low- to middle-income Americans. Chances are it’s these low- to middle-income Americans that have these types of debt repayment practices.

This is still in the early phases of rollout and unlikely to take effect immediately. However, Fannie Mae’s new standards may become routine before too long. It could even snowball so that other lenders judge consumers similarly, which could really make things difficult for Americans.

Navigating Fannie Mae

So how can you work around Fannie Mae’s more in-depth consumer considerations if you don’t qualify for a conventional mortgage? It’s all about enacting a viable credit repair plan. To show that even if you have a balance, you’re doing your best to eliminate it from your credit history check and credit score. Here’s a look at some tips for how to eliminate debt and improve your consumer status:

  • Pay off high interest cards first.
  • Contact lenders to see if they’ll give you a lower interest rate.
  • Consider debt consolidation so that you’re only paying off one balance as opposed to several balances.
  • Only spend what you know you can immediately pay off to avoid accruing more debt.
  • Stay disciplined.
  • Come up with a plan: In addition to a base budget, consider putting any additional income (i.e. performance bonuses, tax refunds, cash back rewards, etc.) toward debt repayment.

The better your credit score, the better your mortgage rates.

While this rule of thumb is fairly common knowledge, most people are unaware of just how much savings homeowners can experience over the term of a 15- or 30-year fixed-rate mortgage with even the most seemingly marginal difference in interest rate. For example, a mortgage rate of 3.75 percent, compared to a lower 3.5 percent rate, would likely cost a homeowner over $40 more a month – or about $500 more per year. If you multiply $500 by 30, that hypothetical consumer is paying about $15,000 more over the course of a 30-year mortgage than a consumer whose rate is only 0.25 percent less. That’s how big the difference can be between an excellent credit score and just a good credit score.

Yes, your credit score can wind up costing you – or saving you – a lot of long-term money when it comes to your mortgage.

Why Your Credit Score is Key

Would you want to lend money to a friend or family member who has a history of never paying people back? Lenders are in the same boat – and that’s why so much weight is put on your credit score during the mortgage loans application process. A good credit score tells lenders that you’re a responsible, reliable consumer with a track record of making on-time payments. A poor credit score can signify the opposite.

When there’s less risk with a consumer, lenders are more apt to do business with them and approve a loan with a low rate. However, when there’s more perceived risk, lenders throw in the caveat of a higher rate if the particular consumer is even approved for a loan in the first place.

What Are the Best Scores for Conventional Mortgages?

The higher the score, the lower your rate. That said, a FICO score of 720 usually puts consumers in excellent standing where they’re able to qualify for the lowest rates. Between 700-720 is considered good standing, where rates are still favorable, but not as low, and 680 is in the average range where rates are likely to be higher. Anything below 680 and you may be hard-pressed to get approved for a conventional mortgage.

If your score is short of the excellent mark, we’d recommend that you do some credit repair in order to get your score up where you can qualify for a lower rate. Though you may be chomping at the bit to buy a home now, the long-term savings of potentially tens of thousands of dollars can’t be dismissed. Here’s how to improve your credit score:

  • Improve your debt-to-credit ratio: Keep your credit card debt within 30 percent of your total credit limit. Anything higher and your score can take a hit.
  • Make all payments on time.
  • Pull your credit report and analyze it carefully for errors. It’s estimated that over 20 percent of all credit reports have some sort of error. Dispute any that are on your report.
  • Pay off high-interest credit cards before low-interest ones.
improve your score before retirement

When you are getting ready to retire, your credit score is probably low on your list of concerns. After all, your days of borrowing are behind you. But, there are still many reasons that maintaining a high Credit Score Before Retirement can be beneficial in your retirement years.

High Credit Scores Save You Money

In retirement, you want to make every dollar go as far as it can to keep you comfortable. Having a high credit score means paying less for many services. Better mobile phone plan rates are often possible with good credit. Insurers will charge you less to insure your car or home. You can also often avoid or reduce costly deposits for utilities if you can show a proven history of paying your bills in full and on time.

Your Current Creditors May Check Your Scores

Credit card companies occasionally check their clients’ credit scores to make sure that they are still in good financial shape. If your credit card company sees that your score is slipping, it can result in a reduction in your available credit, an increase in your APR or even them declining to renew a card that you currently have. On the other hand, if creditors see your scores go up, you may be eligible for higher credit card limits or a lower rate.

You Will Have More Attractive Chances to Refinance

If you still owe money on your mortgage or an automobile loan, refinancing can save you thousands of dollars. This allows you to dedicate less of your retirement income to paying off loans and more of it to enjoyable retirement activities such as hobbies, travel and restaurant meals.

You’ll Have Better Options if You Want Credit in the Future

People are living longer than ever and staying more active in retirement. If you see a good deal on a rewards credit card, good credit will allow you to take advantage. For instance, many airline miles cards periodically offer large sign-on bonuses. Even if you have the money in the bank to pay out of pocket for airline tickets, scooping up the deal can mean saving several hundred dollars on a well-deserved vacation. Just make sure you pay all bills in full and on time to avoid costly interest charges.

How to Increase Your Credit Score

If you already have a high credit score, you won’t have to do anything different to improve your score. As the average age of your oldest accounts increases, your score will naturally go up, as well. If your credit is less than sterling, there are a few ways to improve it before retiring:

  • Pay off any installment loans. If you owe money on a car, furniture, or any other item subject to monthly payments, work to eliminate that debt. The fewer loans you have, the better your score.
  • Keep your credit card balances low. Creditors like to see a low level of utilization compared to your available revolving credit.
  • Check your credit reports regularly. Many reports contain errors that can reduce your score.
  • Don’t close old cards. The length of your credit history is a factor in your credit score.

Good credit habits can pay off for a lifetime. Need a little help getting on track? Contact Key Credit Repair for advice that can help you have a prosperous retirement. Feel free to contact our office, at 617-265-7900 or schedule a free consultation below.

Seven steps to get a home loan.

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.