Tag Archives: credit scores

What Everyone Should Know About Credit Scores

For starters there are different classifications for what is considered a good credit score. They can also be described as poor, average, good, great, excellent, or even exceptional based on the credit score number that you have. Your credit score will fall within one of these categories, but keep in mind the names for these categories differ from industry to industry but to give you a general idea of how good, or bad your credit score is, we have provided you this article outlining what most lenders or banks, even credit card companies and car dealerships, use to determine the likeliness of providing you with a loan at a reasonable rate. Below there is a pie chart outlining what FICO classifies credit score ratings nationwide.

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A good credit score depends on many factors. A credit score when applying for a mortgage is different when applying for a credit card or a car loan at your local dealership.
Based on our experience most credit scores, or what seems to be the average among individuals, fall within 620 to 669. A score between 670 to 680 would be considered above average or generally good credit for most lenders. Anything between 680 and 720 will be measured as excellent or very good credit and will help you attain that interest rate that everyone wants. Now, generally anything above 750 will be seen as exceptional credit, which is what lenders like to see. The higher your score, the better credit decisions lenders will make because they will be more confident that you will repay any future debts.

Credit scores are used by lenders, including banks providing mortgage loans, credit card companies, and even car dealerships to make decisions about whether or not to offer you a reasonable loan and what the terms of the offer (such as the interest rate or down payment) will be. We have broken down the differences among these types of loans below.

Home Loans
Mortgages have two key credit score requirements. The first is the minimum score needed to qualify for the mortgage and the second is also a minimum score but this is for qualifying for a low interest rate. Keep in mind that when buying a home there are many types of loans that one can attain. There are conventional loans, FHA Loans, and VA Loans, all with different minimum credit score requirements.

Credit Cards
Credit card lenders do not reveal their requirements unlike mortgages, credit card issuers don’t disclose their standards. There is no data readily available to the public in regards to credit cards.

Car Loans
Also with car loans, there are no set standards, and credit score requirements vary from one lender to the next. Just like the rest of the type of loans (mortgages and credit cards) it is best to keep your credit score in the above average section of credit score rating. To get the best possible interest rate available as well as the type of loan you can be approved for.

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Do You Know The Impact Of An Installment Loan Vs. Revolving Credit On Your Credit Scores ?

There are several things that affect your credit but one of the main factors to having credit and maintaining a healthy score is understanding debt.  Buying a home is a big step and getting a home loan sometimes seems intimidating.   There have been times that I have had clients that were reluctant to apply for a home loan thinking that they would not qualify.  When in reality they did.

The two basic forms of debt are installment and revolving and having too much of one can hurt you more than the other.  An installment loan is a loan based on repaying the loan with payments over a certain amount of time.  An example of this is a car loan, 3 or 5 years and fixed payments during that time. Your payments include both principal, which is the amount of money you borrowed, and the interest, which is the additional amount you pay for the privilege of borrowing the money.  This is the form of debt that is more predictable for the lender in regards to knowing exactly what the borrower owes and what the payments are going to be.   In fact if you have less than 6 months left on your loan most lenders won’t even count that debt against you.

A revolving line of credit, for example a credit card, may have a minimum payment based on the lender’s policies that may not even cover the interest you owe.  I have seen some cards where the minimum payment did not even cover the expenses for the interest so the balance owed was actually growing.  The outstanding principal which unlike the installment loan can literally last forever when you only make the minimum payments which never really pays down the principal, on the money you owe.  Keep in mind that if all you do is make the minimum payments that it will register with the credit bureaus as well and keep you from getting a higher score.   The better your credit score the better the loan terms can be for you when getting a home loan.  this does not mean you are guaranteed a home loan just means that you have better chances of qualifying with good scores.  Lenders feel more confident that you will be able to pay them back.

It is not exactly true that you need to have good credit to buy a home, you don’t need perfect credit either just relatively decent credit.  There are other programs available for people who have less than perfect credit. You must understand however that these programs consist of higher interest rates.  Reality is you cannot expect to get the same interest rate on a home loan as someone that may have perfect credit if you have issues with your credit.

Another thing with revolving credit is that if you have too many cards even if they have no balances.  The reasoning behind why it can affect your credit is because at any moment you can choose to run those cards up when ever you want.   Which puts you at a higher risk for lending money.   Keep a few cards for emergencies and those incidentals that pop up here and there.  Stay away from the department store credit cards to save that 10% off your purchase price it will cost you a lot more in interest when all is said and done.  Reality is, you can use a Visa at all those stores try to limit your credit cards  to 4.  Any more than that you really have to ask yourself why do I need all those cards?

If you have any questions on buying a home or getting a home loan just ask.

 

 

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What Kind Of Score Do You Need To Buy A House ?

Nancy asks…

trying to buy my first home but no luck?

ok me and my significant other have been living in a rental home for almost a year and we pay 700 dollars a month. Our only source of income is Social Security and rent takes up over half of our income. So we are trying to get a house but I do not think we have the credit to get a house citimortgage and wells fargo and unfortunately I have one credit score that’s 15 points short. i tried hud homes and they want 650 which is odd because a bank only wants 600 or 620 . I have no idea on how to get a house or anything. I am trying to move before Feb. 2013. My credit score is currently getting repaired and it is going up 10 points a month. Any hints or tips in how would I go about getting a house ( hud, foreclosed, whatever I can get) will be helpful. if it helps I reside in Alabama.I just do not want to rent anymore.

admin answers:

First, you will have trouble getting a mortgage with less than a 650 score…while some banks may take a look at your 620 score, the chances of getting the mortgage with less than a 620 are slim, and you will be paying at least 1% if not more over the best rates. Your other option would be an FHA loan – while FHA does not require any specific score, your credit must be clean for at least 2 years (that means no late payments in the past 24 months) and then it is up to the lender (yes, even though FHA does not require specific scores, they also give the lender considerable leeway which lenders are now using to tighten up their basic requirements).

10 points up per month is about the best you can hope for. Credit scores are based on credit history – what is past is done and you can’t change the past. You can only change you present and future, but time only goes by at its current pace – since scores are based on time, you can’t hurry up scores or time.

If the $700 is taking up half your income, that means that your monthly income is less than $1,400 and your annual income is about $16,000 – assuming you could qualify for a mortgage, the most you will be able to borrow is $48,000. Note you will need a minimum of 3.5% down (no borrowing for a down payment) plus 5% for losing costs – this puts your house price at no more than $50.000 total and you needed almost $5,000 to actually close on the house and move in – and that is $5,000 in cash. So the question is, do you have the $5,000 in cash and if not, can you save it by February?

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When Can I Buy A Home After A Short Sale, Foreclosure or a Bankruptcy?

The other day I had someone comment to me that no one really wants to buy a home and no one is really buying, that is not true, they are more like trying to buy but qualifying in today’s world is not the same as it once was.  The latest studies show that 29% of all Americans have credit scores of 580 or below, and in the Santa Maria real estate market that is no exception. The FICO score is one of the first things lenders look at in determining a borrowers qualification for getting a mortgage loan.  Most of my appointments lately have been those that have sufficient income to qualify to purchase a majority of the Santa Maria homes for sale especially with the today’s current interest and with the values that homes are currently at.   The reality is that for the majority of those in Santa Maria or around the surrounding areas the rent of the home that most are living in can be purchased and paying a lower mortgage payment than what they are currently pay for rent.  But the problem is that most of them seem to have low credit scores due to past events.  I have a good majority of my appointments now consist of those that lost their homes 2-3 years ago or those that have had to file bankruptcy for whatever reason 2-3 years ago or more.  But with today’s lending environment banks are not willing to lend money to people with a past history that is still affecting their scores.  In some cases, it is possible for people with bad credit to qualify for a home loan, but it is difficult and the rate is higher. Essentially, this means that nearly one in every three Americans do not have enough good credit to purchase real estate.

But…..

If you did lose your home lets say 3 years ago you do qualify for an FHA loan from the date of sale on your home when you lost it and the biggest factor that may be holding you back is your credit.  People seem to forget to check up on their and verify what is being reported.  It may be accurate it may not be the reality is YOU need to know and you do get a free credit report once a year so why not see whats on there and you can even dispute it if it should of been removed because you have already taken care of that particular account.  To see what is being reported on your credit report you can go to www.AnnualCreditReport.com, just a heads up you will need to have some old account numbers handy to verify that you are you .. also keep in mind this is only to see what accounts are on your credit report they will not disclose credit scores those you have to pay for separately for each credit bureau.

Those that lost their homes due to a foreclosure and even those that did a short sale on their homes 3 years ago are not eligible for an FHA loan so that means

3 years ago you lost your home now you can probably buy that same home in that same neighborhood for less than half what you probably owed on it when you lost it.

Although I know for many at the time of losing the home it was pretty dramatic whether you did a foreclosure or a short sale it really doesn’t matter both events are probably something you never thought you would do or that would ever happen to you.  But you were not alone in this and millions of other home owners had to experience the same feelings of failure and disappointment.  But at the same time I am getting some really happy people when they are qualified and buying a home in the area for less than sometimes even as much as 70% of what they owed on their home.  So sometimes one door closes and another door opens, it just takes awhile.

As for Bankruptcy same thing all you need is 3 years so if you were in the position that you felt you had to file for bankruptcy and 3 years have passed you can buy a home as well.   Now if you lost a home 3 years ago and you filed BK 2 years ago you need to wait till the 3yrs. have passed on the BK and its not from the date you filed but from the date it was discharged basically when you were done and over with it .  Which if you filed a chapter 13 might be a little longer of a process but if you filed a chapter 7 could be much sooner.  But you still have to re-establish your credit.  I once had two brothers that filed BK on the same day due to a failed business they had together one brother I had 700 plus fico scores and the other I could not touch.  The difference was that one brother was diligent about re-establishing his credit and building it back up.  I had clients this year that had filed BK and swore to never use credit again which is fine unless you ever want to borrow money.  So when I ran their credit, they had nothing no scores nothing … they had not debt also which is great and lived by the attitude if we have no cash to buy we do not buy it but I could do nothing with them.

Needless to say that for most people what is stopping them is credit not necessarily their income, from buying a home.   Simple solution is just check your credit and address any issues you see there, and if you see something that should be fixed dispute it.  IT IS FREE TO CHECK YOUR CREDIT YOU CAN ONCE A YEAR WWW.ANNUALCREDITREPORT.COM.

For A FREE List Of Foreclosures & Pre Foreclosures On The Central Coast Click HERE

If you have any questions about buying a Santa Maria home for sale in the Santa Maria Real Estate market or any properties on the Central Coastand need to get a loan in Santa Maria, CA or any where in the state of so I California not just on the Central Coast, so I can do California home loans, and first time home buyer loans, as well as refinance home loans and just plain simple mortgage loans. So please contact me by sending me an email at: GenePerez@GMSLoans.net

I do also service all the nearby communities and other markets such as the Santa Ynez real estate market, Nipomo Real estate market, Arroyo Grande real estate market, Grover Beach Real Estate Market, and all other surrounding areas regarding the homes on the Central Coast.

my goal is to provide you with resources you need. I can also help in getting the financing for your home. If you have any suggestions or questions in how I can provide more or better

information please let me know. I have been helping my clients for the last 15 years on the Central Coast, Gene Perez – 805-448-7101 , DRE 01321588

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Important Disclaimer: Questions and answers provided on this website and by Gene Perez is to be considered general information, and is not intended to substitute for informed professional financial, tax, legal, investment, accounting, or other professional advice.

Gene Perez is Licensed Real Estate Broker for Valley Hills Realty and a mortgage broker for Greater Mortgage Solutions.

This blog and its content is copyright of Gene Perez 2010. All rights reserved. Any redistribution or reproduction of part or all of the contents in any form is prohibited other than the following: you may print or download to a local hard disk extracts for your personal and non-commercial use only. You may copy the content to individual third parties for their personal use, but only if you acknowledge Gene Perez as the source of the material You may not, except with our express written permission, distribute or commercially exploit the content. Nor may you transmit it or store it in any other website or other form of electronic retrieval system without obtaining Gene Perez’s

 

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New Credit Scores For Home Loans

With many of the things going affecting new and potential homeowners that are trying to learn how to buy a home, one of the many hurdles is having credit to qualify for the home loan, here is an article on some of the changes taking place.

 

By Jeffery Marino • Dec 16th, 2010 • Category: real estate newsflash

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In a delayed knee-jerk reaction to the mortgage meltdown and sub-prime lending crisis of 2008, lenders offering access to Federal Housing Administration (FHA) -insured loans are tightening their standards above and beyond those required by the federal agency.

The FHA instituted minimum Fair Isaac Corporation (FICO) scores for the first time in October of 2010. According to the FHA, borrowers shopping for conforming loans must have a minimum FICO score of 500 while those who have a score of 580 or higher are eligible for the maximum financing benefits available. [For more information on FHA home loan regulations, see the July 2010 first tuesday article, The true costs of a default-insured mortgage.]

However, the minimums required by the FHA are much lower than those required by the underwriting standards of most lenders today. Many lenders set a minimum FICO score of 620 for their FHA-insured loans as early as 2009. While 620 remained the magic number for the Big Three (Bank of America, Wells Fargo and JPMorgan Chase) for quite some time, now the major players on the mortgage-backed bond (MBB) market will not purchase an FHA loan from the originator unless the borrower has a minimum FICO score of 640.

Considering there are roughly 6.3 million people in the United States with a credit score between 620 and 640, the 20-point increase in minimum FICO scores will exclude as much as 15% of FHA borrowers. Given the continuing decline in consumer credit scores resulting from ongoing foreclosures and a still-high unemployment rate, these increased restrictions will affect those hit hardest by the recession.

first tuesday take: Once again, the California real estate market, and the health of the economy as a whole, are being held hostage by Wall Street. Note that this is not the government, not FHA. The MBB market is apparently still reeling from the near-death blow it sustained in 2008 and the present onslaught of litigation over their having to now buy back the bad loans they previously originated and sold, which is not helping them make a loan to the prospective homebuyer with a less-than-average credit score.


We are entering a phase in this economic recovery where wage-earners are slowly beginning to accrue wealth once again – at least in California, with the exception of temporary and part-time employees (government employees). After cutting their debt-to-income (DTI) ratio in half via strategic default or bankruptcy filing, the individual who was previously held prisoner by their underwater home is now newly solvent and looking for a good value on the real estate market. [For more information on strategic default and homeowner solvency, see the September 2010 first tuesday article, The LTV tipping point: when negative equity owners strategically default.]

Unfortunately, blame for the reckless and short-sighted lending practices during the Millennium Boom is being artfully sloughed-off by the Big Three and conveniently attributed to consumer irresponsibility. Rather than restructuring underwriting methods in such a way that would create sustainable and logical lending practices that are appropriate to the current economic milieu, the Big Three are falling back on their trusty (read: outdated and over-emphasized) tool: the FICO score. [For more information on the overemphasis on FICO scores in determining creditworthiness, see the June 2010 first tuesday article, The FICO score delusion.]

Under the guise of increased lender responsibility and consumer protection, the big banks are penalizing recently foreclosed-on homeowners by raising the arbitrary bar for creditworthiness. Certainly the FICO score can be a useful tool for determining a borrower’s ability to pay back a loan. But with a growing contingent of prospective homebuyers who have increasing purchasing power and dwindling credit scores, the overemphasis on the credit score simply does not work in our recovering economy.

In spite of their proven allegiance to the banking industry (read: massive bailouts), Congress has clearly rebuffed lender arguments that the consumer was responsible for the mortgage crisis.

After a century’s worth of efforts and many defeats at the hands of big business, Congress successfully instituted the Consumer Protection Agency this year. To drive home the point they are no longer willing to let public policy be controlled by private banks, Congress granted the Federal Reserve Bank (the Fed) control of regulating rogue mortgage lenders who still seem unwilling to bend to the government’s regulatory will.

Hopefully, as a new paradigm focused on responsible lending and sustainable homeownership takes shape, real estate agents, brokers and lenders will follow suit.

Re: “Home Buying Gets Tougher as Lenders Restrict FHA Loans” from Bloomberg News

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Copyright © 2010 by first tuesday Realty Publications, Inc.  first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

 

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