Category: Credit Scores
It’s common knowledge that your FICO ® score plays an important role in the homebuying process. However, many buyers have misconceptions regarding what exactly is required to get the loans they need. While a recent announcement from CNBC…
It’s common knowledge that your FICO® score plays an important role in the homebuying process. However, many buyers have misconceptions regarding what exactly is required to get the loans they need.
While a recent announcement from CNBC shares that the average national FICO® score has reached an all-time high of 706, the good news for potential buyers is that you don’t need a score that high to qualify for a mortgage. Let’s unpack the credit score myth so you can to become a homeowner sooner than you may think.
With today’s low interest rates, many believe now is a great time to buy – and rightfully so! Fannie Mae recently noted that 58% of Americans surveyed say it is a good time to buy. Similarly, the Q3 2019 HOME Survey by the National Association of Realtors said 63% of people believe now is a good time to buy a home. Unfortunately, fear and misinformation often hold qualified and motivated buyers back from taking the leap into homeownership.
According to the same CNBC article,
“For the first time, the average national credit score has reached 706, according to FICO®, the developer of one of the most commonly used scores by lenders.”
This is great news, as it means Americans are improving their credit scores and building toward a stronger financial future, especially after the market tumbled during the previous decade. With today’s strong economy and increasing wages, many Americans have had the opportunity to improve their credit over the past few years, driving this national average up.
Since Americans with stronger credit are now entering the housing market, we are seeing an increase in the FICO® Score Distribution of Closed Loans.
But hang on – don’t forget that this does not mean you need a FICO® score over 700 to qualify for a mortgage. Here’s what Experian, the global leader in consumer and business credit reporting, says:
FHA Loan: “FHA loans are ideal for those who have less-than-perfect credit and may not be able to qualify for a conventional mortgage loan. The size of your required down payment for an FHA loan depends on the state of your credit score: If your credit score is between 500 and 579, you must put 10% down. If your credit score is 580 or above, you can put as little as 3.5% down (but you can put down more if you want to).”
Conventional Loan: “It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.”
USDA Loan: “While the USDA doesn’t have a set credit score requirement, most lenders offering USDA-guaranteed mortgages require a score of at least 640.”
VA Loan: “As with income levels, lenders set their own minimum credit requirements for VA loanborrowers. Lenders are likely to check credit scores as part of their screening process, and most will set a minimum score, or cutoff, that loan applicants must exceed to be considered.”
As you can see, plenty of loans are granted to buyers with a FICO® score that is lower than the national average. If you’d like to understand the next steps to take when determining your credit score, let’s get together so you can learn more.
For your free credit report and analysis call us today at 502-905-3708 or email us at email@example.com
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
Get Yourself Pre-approved for a Mortgage in Kentucky
Buying a home can be a nerve-wracking experience, especially if it’s your first time. It may feel even more so if you’re still saddled with student loan debts.
Does your income-driven repayment plan has Do you have Federal student loans in it? Do you know how your lender will handle your debt to income ratio?
These are just some of the factors that you need to put into consideration when planning to buy a house. It might just be not that easy since you also have to factor in your student loan debts.
To make the process less intimidating for you, here are the things you need to do.
Pay Attention to Your Credit Score
FICO credit scores are among one of the most commonly used scoring systems by lenders and creditors whose range plays in between 350 to 800. A consumer with a credit score below 620 is considered to have poor credit, while those with credit scores of 750 or higher is considered to have excellent credit.
Now, if you want to qualify for a home improvement financing or a mortgage and nail a low mortgage rate, make sure your credit score is in good shape. Whenever you apply for a mortgage, every credit bureau gathers information about your credit history and calculate your credit score that lenders will use to gauge your risk factor.
If you find an error or any inconsistencies in your credit report, report it immediately to the credit bureau and have it fixed.
Your DTI (debt-to-income ratio) is one of the major factors that lenders consider when you apply for a mortgage loan. It’s the ratio of the total amount of your recurring debt every month with your monthly gross income.
To calculate your DTI, add up all of your recurring monthly debt such as student loan payments, minimum credit card payments, or car loan payments, then divide it by your pre-tax (the amount you earn before taxes and other withholdings) income every month.
Since your debt-to-income contains two main components: debt and income, the efficient way to reduce it is to:
earn more income
repay existing debt
Case in point: Lenders will approve the application of those who are financially responsible.
Know it that your payment history takes up one of the biggest portions of your credit score. Thus, to make sure that you pay on time, set up an autopay system for all your accounts so that funds are automatically debited every month.
Moreover, your FICO is being weighed heavily by current payments, which means your future will matter more than your past. Make sure also to do the following:
Pay off the balance if you have a delinquent payment.
Do not skip payments.
Pay on time.
The common cycle for home buyers is to look for a property, then get a mortgage. You have to switch it.
It’s better if you get yourself pre-approved with a lender, so you will know how much you can afford for a home. To get pre-approved, lenders will look at your income, credit profile, employment, assets, to name a few.
Besides your credit score and DTI, your lenders also assess your credit card utilization score, or your credit card expenses as a percentage of your credit limit every month. The ideal credit utilization must be 30% or less. Even better, keep it less than 10% if possible.
For instance, if you have a $20,000 credit card limit and spent $6,000, your credit utilization is equivalent to 30%.
If you want to regulate your credit card utilization better, here are the things you can do:
Talk with your lender about increasing your credit limit. It may require a hard credit pull so better consult your lender first.
Pay off your balance at least twice a month to lessen your credit utilization.
To track credit utilization, set up alerts for automatic balance.
Even if you have outstanding student loan debts, you can still seek for different down payment assistance. You can start with the following:
USDA loans. These loans have zero-down mortgages for suburban and rural homeowners.
FHA loans. Acquire federal loan through the Federal Housing Authority.
VA loans. You can avail these loans if you’ve served in the military service.
There are local, state, and federal assistance programs as well that you can resort to.
If paying off your credit card balance is impossible before getting a mortgage, you can consolidate your credit card debt into one personal loan for a lower interest rate.
Taking a personal loan can help you save big on you on interest expenses over the repayment term, which usually lasts for three up to7 years, depending on the lender. It can also enhance your credit score since it’s an installment loan with a fixed repayment term.
On the flip side, credit cards have no fixed repayment terms because they are revolving loans. When such is the case, you can minimize your credit utilization and diversify your debt types whenever you trade your credit card debt for a personal loan.
Buying a home while grappling with student loan debts can be taxing. Your likelihood to get a mortgage for a property will depend on your loans. It can result in disappointment if your loans are in bad shape.
Now, if you don’t evaluate your student loan picture and ensure that you’re taking all the necessary steps to be successful, getting that mortgage will be impossible. It might not work all the time, but arming yourself with the right knowledge to get there is the beginning of your homeownership journey.
© 2017 University Herald, All rights reserved. Do not reproduce without permission.
The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation
Here are Magnify Money’s tips on improving a low credit score:
In order to establish credit history, you need to have a form of credit. The simplest way for you to begin will be to open a credit card. If your score is low or non-existent, you’ll need to apply for a secured or store card.
Secured Card: You’ll use your own money as collateral by putting down a deposit of a few hundred dollars with the bank. Typically, that amount will then be your credit limit. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card.
Store Card: People with a low credit score can often still get store cards because banks are more likely to approve users who apply through the store. The catch is that the interest rates are often very high.
Your goal should be to never exceed 30% of your credit limit. Ideally, you should be even lower than 30%, because the lower your utilization rate, the better your score will be.
We recommend you make one small purchase a month to keep your utilization low and help increase your credit score at a faster rate.
The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.
Being late on your payments has a very negative impact on your credit score.
There is also no advantage to only paying the minimum amount due on your card. That will only result in you paying interest, and does nothing to help your credit score. So just save yourself money and pay your entire bill.
Just like the gas prices at the pump, mortgage rates can change daily or throughout the day. Typically mortgage rates are published at 10-11 am daily by most lenders and you can lock up through the close of business which is usually around 6-7 PM. Mortgage rates can change up or down throughout the day based on various financial, economics, and geopolitical news in the US Financial markets and World markets. Generally speaking, good economic news is bad for rates and vice versa, bad economic news is good for mortgage rates.
The good news is this: Once you find a home and get it under contract, you can lock your mortgage loan rate. Typically it takes about 30-45 days to close a mortgage loan in Kentucky, so the typical lock is for 30-60 days. If rates get better you may be able to negotiate a better rate with your lender, but they usually have to improve by at least 25 basis points (.25) to do that. Not all lenders offer this option. The longer you lock the loan, the greater the costs. It is usually free to lock in a loan for up to 90 days without having to pay a fee.
What a lot of lenders are experiencing now is that some loans don’t close on time for various reasons. You can always extend the lock on the loan but it will costs you usually .125 basis points to do so. If you let the lock expire on the loan, then you have to take worse case pricing on that day when you go to relock. It is usually best to extend the lock on your loan.
FHA will allow a home buyer to purchase a house with as little as 3.5% down. If your credit scores are low, say 680 and below, a lot of times it makes sense to go FHA because everyone pays the same mortgage insurance premiums no matter what your score is, and the down payment can be gifted to you. Meaning you really don’t have to have any skin into the game when it comes to down payment. They even allow down payment assistance through eligible parties (government grants or non-profits). Lastly, FHA will allow for higher debt to income ratios with sometimes getting loan pre-approvals up to 55% of your total gross monthly income.
VA loans offer eligible Veterans and Active Duty Personnel to buy a home going no money down with no monthly mortgage insurance. This is probably the best no money down loan out there since the rates are traditionally very low on comparison to other government insured mortgages and no monthly mortgage insurance. The VA loan can be used anywhere in the state of Kentucky with the maximum VA loan limit being $484,500
USDA loans offer people buying a home in rural areas (typically towns of $20k or less) to buy a home going zero down. You cannot currently own another home and there is household income limits of $75,000 for a household family of four, and up to $99,000 for a household of five or more. You search USDA website for eligible areas and household income limits below at the yellow highlighted link :
“We were searching online for mortgage companies in Louisville, Ky locally to deal with and found Joel’s website, and it was a godsend. He was great to work with, and delivered on everything he said he would do. I ended up referring my co-worker at UPS, and she was very pleased with his service and rates too. Would definitely vouch for him.” September 2016
“We contacted Joel back in July 2011 to refinance our Mortgage and he was great to work with. We contacted several lenders locally and online, and most where taking almost 60 days to close a refinance, Joel got it done in 23 days start to finish,I would definetly recommmend him. He got us 3.75% with just $900 in closing costs on our FHA Streamline loan.
“Joel is one of the best Mortgage Brokers I have ever worked with in my sixteen years in the real estate and mortgage business.” May 25, 2010
“Joel has always worked very hard to keep his word and to work out seasonable solutions to difficult problems. He is truly an expert in FHA and other type loans.” September 1, 2010
“I have worked with Joel since 1998. He is a great loan professional.” I refer most of my Louisville, Kentucky area home buyers to him and he always take special care of them. August 23, 2012
“Joel Lobb is a real professional in the lending industry, with many years of experience, he is the one to go to for any mortgage lending needs.” August 22, 2011
RICHARD VOLZ , Residential Sales , Remax Foursquare Realty
“When looking to purchase our new home in 2006, I had the pleasure of meeting Joel Lobb. Not only was he personable and easy to reach, he was extremely knowledgable in his field and made sure to find us the best rate and a top notch mortgage company. We were able to complete the process in less than 3 weeks with his expertise. I find Joel to have the utmost high integrity and I recommend him to anyone who say’s they are need of mortgage assistance. He is also fantastic and keeping everyone up to date on the latest in the housing industry through his twitter posts. He provided great results for our family and we still communicate to this day!” August 21, 2010
“We first use Joel on our new home purchase in 2007 in St Matthews, Kentucky area and he was great to work with. We have since refinanced our home with him in 2010 when rates got really low and he has always delivered on what he says. I could not imagine using anyone else.”
Melody Glasscock March 2014
I can answer your questions and usually get you pre-approved the same day.
Call or Text me at 502-905-3708 with your mortgage questions.
Joel Lobb (NMLS#57916)
Senior Loan Officer
I talk to a lot of people every week about their credit scores. I spoke with a gentleman yesterday that was telling me about his credit score issue.
He was recently out of the country for a couple months and one of his accounts’ auto pay amount changed which only covered part of his monthly payment. The bank noted this on the account and reported him late 30 days because the full payment amount wasn’t received.
Prior to this event his credit scores were in the 800’s, now they are in the high 500’s. It had taken him years to achieve such a high credit score, and only days to lose that score.
Payment history is the biggest factor in your FICO score. It amounts to 35% of your credit rating.
If there’s anything you do with your credit, make absolutely sure you get your monthly payment (in full) in on time. It will take years for him to get his scores anywhere near 800 again.
If you need help raising your credit scores please contact me direct. I can review your credit reports and give specific direction on how to get your scores up.
“Grossing-Up” Non-Taxable Income
Did you know that you can gross up non-taxable income?
You may gross up non-taxable income for income qualifying purposes. The non-taxable income source being “grossed-up” must be documented.
Non-taxable income refers to types of income not subject to federal taxes, which includes, but is not limited to:
The percentage to be grossed-up varies by agency:
Now let’s talk about what it takes to qualify for a mortgage.
First off, you’ll need an adequate credit score, along with sufficient income to make the proposed mortgage payment each month.
Generally speaking, a credit score below 620 is considered subprime in the mortgage world and will make qualifying for a mortgage that much more difficult. But it’s still possible depending on lender and loan type.
If you’ve got previous foreclosures on your credit report, things will get even more problematic and you may not even be eligible for a certain period of time.
But if your credit score is above 740 and you’ve got some decent credit history to back it up, you should have access to the lowest mortgage rates and a wide array of loan options.
Credit scores in between should still work, though there might be pricing hits associated, which all else being equal, may bump up your interest rate.
Tip: Lenders want to see a minimum of 3 active credit tradelines with two-year history on each to assess your creditworthiness.
As far as job history goes, it’s important to show the mortgage underwriteryou’ve had (and still have!) a steady job, typically for two years or longer.
This essentially proves that you will continue to receive regular income to make those costly mortgage payments each month for the next 30 years.
If you just graduated and have held a job for a mere two months, don’t expect to qualify for a mortgage unless your new position directly correlates with what you studied in school.
For example, if you went to medical school, and now have a job as a doctor, this might be sufficient to qualify for a mortgage.
But if you were an art history student who has been working as a flight attendant for two months, mortgage lenders probably won’t feel comfortable lending to you just yet. Make sense?
When seeking out your mortgage, you’ll also need to consider the mortgage down payment requirements, which vary depending on the type of loan you’re after.
While there are still some zero down mortgages around, namely VA loans and USDA loans, it certainly helps to set aside some assets so you’ve got something to put into your home purchase.
Obviously, the amount of money needed will also vary based on the purchase price of the home. If you want a more expensive house, expect to put more down in order to qualify.
If we’re talking about a mortgage refinance, you’ll need a certain amount of home equity to qualify for the mortgage, as determined by loan-to-value ratioconstraints.
When it comes down it, it’s all pretty much common sense. Do you think you can/should qualify for a mortgage?
Do you have a track record of making on-time payments, carrying large amounts of debt and paying it down, holding a job, and saving money?
Are you ready to make a big commitment? If you were the bank, would you lend you a mortgage…hmm.
I would guess that most prospective homeowners could assess the situation beforehand and determine if they should be granted a mortgage.
But without running the numbers, you won’t know for certain. So be sure to do plenty of calculations and speak with a loan officer or two to see where you stand.
Here’s a general list of what you need to qualify for a mortgage. Keep in mind that qualification requirements vary greatly by lender and loan type.
In some cases, you won’t need all of these things, but it should certainly make life easier to satisfy everything on this list.
If you can’t satisfy these basic requirements, you may want to keep renting, saving, and working on your credit until you can.
Or consider adding a co-signer who is better qualified to apply for a mortgage.
Either way, don’t be discouraged. There are lots of home loan programs and creative options out there to suit all different needs. As noted, one lender may say no while another says YES.
Read more: Tips for first-time homebuyers.