23 Jan Unbelievable Credit Scores Now Qualifying for Mortgage!
LOANS ON CREDIT SCORES AS LOW AS 500!
There are a lot of opinions on what caused the mortgage crisis in 2008. However, one area of agreement is that underwriting standards became incredibly lax during the boom. In particular, lenders would make “subprime” loans to people with very bad credit scores, no down payment and no verification of income or employment.
Lending requirements tightened considerably after the crash. However, the FHA is still pursuing a goal of increased home ownership. You can get an FHA loan with a credit score as low as 500, so long as you have a 10% down payment and can qualify with their stricter guidelines. Once you hit a 580 credit score, you only need a 3.5% down payment.
HOW TO CHECK YOUR CREDIT SCORE
Yes, it is true, if you had a foreclosure before 2010, you may qualify this year to get back into a home to call your own. A foreclosure impacts your credit score for 7 years, so if this is the boost your score needs, now is the time to be looking seriously at your credit and getting it into the best shape possible. There are free websites, such as freecreditreport.com or creditkarma.com that will give you an updated credit score on a monthly basis at no charge. Best of all, when using sites like these, checking your own score does not involve any risk of lowering it! The image below is a screen shot from Credit Karma. It will show on your home page, what your current score is with two of the largest reporting Credit Bureaus.
USING A CREDIT SCORE SIMULATOR
Knowledge is power, it gives you a basis to improve upon, whereas sticking your head in the sand and hoping it will magically be okay someday is not quite as effective! These sites will offer you tips on where you can improve and Credit Karma has a simulator that will tell you what your score would be if you made a payment late, opened a new charge card, got a car loan etc. Check it out!
Becoming aware of which factors will carry the most weight in raising or lowering your credit score can help you in determine what bills to pay off first and what you can be doing now to raise your score.
WHAT FACTORS AFFECT MY CREDIT SCORE
Many different mathematical formulas are used to calculate credit scores and most are based on the following factors, although the different reporting bureaus (Transunion, Equifax, Experian, ect) may weight these factors differently:
- Payment history. This, along with public records (see below), generally accounts for approximately 35% of your score. A record of late payments on your current and past credit accounts will typically lower your score. Being consistent about paying on time can, over time, have a positive impact on your score.
- Public records. Matters of public record such as bankruptcies, judgments, and collection items may lower your score. Be aware of these, even if you can’t always avoid them.
- Length of credit history. In general, a longer credit history is better and can sometimes have a positive impact on your score. Credit history typically accounts for around 15% of your score. Having a variety of credit also helps such as revolving credit, car loans, mortgage etc.
- New accounts. Opening multiple new accounts in a short period of time may negatively impact your score.
- Inquires. Whenever someone else gets your credit report — a lender, landlord, or insurer, for example — an inquiry is recorded on your credit report. A large number of recent inquiries may negatively impact your score. Your new credit accounts and inquiries generally make up about 10% of your score.
- Accounts in use. The presence of too many open accounts can have a negative impact on your score, whether you’re using the accounts or not. This activity usually makes up approximately 10% of your score. Having a few open accounts and using less than 30% of your available credit can help you improve on your open accounts.
NEXT STEPS TO QUALIFYING FOR A MORTGAGE
Once you get yourself into the 500 range or higher, it is time to start talking with loan officers to find out what your credit rating should be, based on your individual circumstances, to enter the housing market again.
While interest rates are just starting to climb up for the first time in a decade, they are still very low! It is true that the higher credit score is, the lower your interest rate will be, however, accepting a higher interest rate now may equal what interest rates might be by the time you get yourself up to the score you desire. So yes, buying a home now can make perfect sense, even if your credit is not perfect.
Below are the basic levels in which your interest rate can improve as you reach new heights in your credit score. If you are close to a new level, you may want to explore areas in which you can improve your credit quickly.
Bottom line, know what your credit score is and work on improving it the best you can. When you are ready to buy a home, call on a TREO agent to guide you through the process.