Recently I was reviewing a credit report with a prospective homebuyer. After going over a few different pieces of information together, we began to talk about differing mortgage programs available to him for his home purchase.
It’s fair to say, that this young man’s credit scores were … well, shall I say, “challenged”? They were close to getting his foot TO the door of a new home, but not quite THROUGHthat door. He had some work to do.
But it quickly became quite clear that my young client was not grasping just how his credit scores would be utilized and the very important part they would play in determining … not only IF he could buy a home … but WHICH mortgage programs, if any, would be available to him for his home purchase.
His comment to me was, “so if my middle credit score is lower than the guidelines allow, why can’t you just use the highest score of the three?” Aaahhhhh … if it were only that easy!
So for those reading this post and hoping to become a home buyer soon or in the future … here are some basic, but important facts that you need to know regarding your credit scores and their relationship with mortgage programs …
There are 3 credit bureaus:
The information found within your credit report(s) determines your FICO Score (an ancronym standing for Fair, Isaac and Company). Your FICO Score can range anywhere from 300 to 850. The higher the score, the better your credit is considered. The higher your credit scores, the more mortgage financing options you have. The higher the credit scores, the lower the interest rates you receive for your mortgage financing.
See what I mean about credit scores and mortgage programs being “Kissin’ Cousins”?
When I am determining which mortgage programs are available to my borrower, it is the middle credit score(between highest and lowest score) that is key. It is theirmiddle credit score that determines (allows or dis-allows) the use of any particular mortgage program. And again, the higher that middle credit score is, the more mortgage options available and the better the interest rate for their mortgage financing.
My young buyer learned quickly that his lower credit scoreswere going to be an obstacle to buying the home he wanted … in the time frame he had hoped for. The good news is that I was able to suggest a few courses of action that will boost the two lower credit scores up above required lending guidelines in a fairly timely manner. And my buyer is lucky enough to be negotiating a sale with a patient builder that is willing to allot him more time in which to build his credit scores. All good news.
But what if this hadn’t been the case? The “Kissin’ Cousins” weren’t able to smooch? There would have been no deal!
Knowing your credit scores is important. Whether buying a home or not. It’s SO VERY EASY to obtain your credit scores … and inexpensive to do so. And for potential home buyers it’s absolutely essential to get educated about credit scores well in advance of starting the home search. I would suggest that anyone hoping to buy a home, run/research their scores (at minimum), ONE YEAR PRIOR to the date they hope to purchase a home.
I run FREE credit reports for anyone looking to pre-qualify for a mortgage loan with me. I also run FREEcredit reportsfor my past clients, as part of my continuing mortgage service. Many other lenders do likewise. Why would anyone not take advantage of this FREE, important, and extremely beneficial service??
The relationship between your credit scores and your mortgage is a very close and important one. The relationship between your credit scores and the cost and availability of so many important services and products in today’s world are … yes … more than “Kissin’ Cousins”.