A good credit score is a valuable asset if you are thinking about making any financed purchase, but in real estate, it can save you tens of thousands of dollars in interest payments, and open up more loan options and programs. If you are reading this, my guess is you have less than excellent credit, but it doesn’t matter whether your score is a 500 or a 650, you will ALWAYS will benefit from a higher credit score when obtaining financing!
In order to obtain financing for a new home purchase you will need to be qualified though a mortgage lender or broker. The good news is that they use several factors in determining if you qualify for a loan. One of the most common scores used by mortgage lenders to determine credit worthiness is the FICO Score (Fair Isaac Corporation). FICO Scores help lenders calculate the interest rates and fees you’ll pay to get your mortgage. FICO takes different variables on your credit reports, such as those listed below, from the three major credit bureaus (Equifax, Experian, and TransUnion) to compile your score. FICO Scores range from 300 –850.
Your FICO score is based on the following factors:
- Payment history (35%)
- Amount owed (30%)
- Length of credit history (15%)
- Types of credit (10%)
- New credit (10%)
Then the mortgage lenders will take that score and combine it with other factors such as:
- Debt-to-Income ratio (DTI)
- Down Payment
- Employment History
And all of this will combine to see if you qualify for one of the lender’s mortgage programs. You may read more about the most common mortgage loan types here, as well as see their average FICO score to qualify for each program. But as of this writing you will typically need a 620 FICO score or better to obtain financing with most loan programs. If you do not have at least a 620 FICO score, I always advise my clients to speak with a credit repair specialist. Most think that they can do it themselves. If they just pay off a couple small loans it will bring the score up! However, there may be other items on your credit report that could bring it up faster, and cost you less money. A credit specialist will know the difference and be able to help your credit faster. And most consultations are free.
A credit repair company that I refer all my clients to for assistance is ReScore. The reason being is that they will perform a free no-obligation review of your individual situation. If needed, they then a charge a very low monthly fee ($1 for the first 7 days, $21.99 if needed after that) to monitor your credit. Then, unlike most credit repair companies, they only charge you for items that they can actually remove from your credit report! ReScore prides itself on being a pay-for-deletion company. They only charge work upon completion. This is the reason I refer to ReScore, as I do not collect ANY referral fee from them or benefit personally from their recommendation. I want to help my clients get into a home they love, period. And if that means it will take 6 months or longer to put them in a better financial place and save them tens of thousands of dollars, that is okay with me. In addition to credit repair they can assist you with establishing credit, student loan consolidation, budgeting, debt settlement or consolidation, and business credit.So reach out to them and let me know how your experience was! I think you’ll be happy.