Yes, credit guidelines have gotten tougher, but NO, you don’t need a 700 credit score.
Here we go again, with realtors making things sound semi easy. There was a question on Trulia last week, and the buyer said that they heard that you needed credit scores of 700. And what do you do if you have scores from 614 to 620.
Here was part of the answer from a realtor answering the question.
"You can actually purchase a home with a credit score in the 500'sdepending on job history, etc. I have several lenders who can assist you."
Sorry, but this answer sounds easy, and it's not that easy if you are under 620. Yes, there are investors out there that are allowing credit scores below 620, even down to 535. But the guidelines are much stricter. You really can't exceed the income ratios, your job history needs to be good, and your credit still needs to be decent and conform to the FHA guidelines.
Keep this in mind, even though it could be done, at what cost to you? Does your loan officer explain this to you and break this down? The rates and or add ons for lower credit scores are much higher also. And if loan officers and or realtors say, don't worry, you can refinance later, then WORRY !!!
Let's quickly review your refinance options.
- You can only do a rate and term within the first 12 months after you purchase your home. If you want to pull any equity out, on a normal refinance, you need 12 months or more.
- Let's say rates are now 5.50% with zero points, with a 620 credit score. You currently have a 585 credit score and because of this, your current rate is 6.25% and it's costing you 1 1/2 points. (yes, this is the type of penalty for that kind of credit score) You really can't refinance for about 6 months, and you are working on your credit scores to improve them. Well, in 6 months, rates increase to 6.00% with zero points. You are basically stuck with that higher rate that you originally received.
- Keep in mind, it still costs money to refinance, even if you do a FHA streamline refinance. Yes, there are no cost mortgages, but your rate is much higher.
What to do with credit scores if they are below 620 :
This is where a true mortgage professional comes into play. I just had a VA client referred to me by Allison Stewart, who was told on Friday that their scores dropped to 617, as a mid score. I spoke to them on Saturday and explained to them that I can work on their credit and get that up 3 points. Well, on Monday, the previous loan officer called them and told them the same thing. How come she didn't bring this up on Friday? Maybe she is new and not sure? Not good with credit? In any case, here are some basics.
- You want to keep your balances below 35% of your credit limit or lower. The higher the percentage, the more it could affect your credit scores. By paying down your balances, this could raise your scores.
- Don't pay off your collection accounts if you are applying for a mortgage. You would then want to pay these at closing. By paying off early, it could actually lower your credit scores. It does depend on how old these collections are.
- Lates over 12 months old don't hurt as much. Sometimes you can talk to your creditor to remove a questionable late mark.
Summary :
Most of what is mentioned is for FHA mortgages. If you are doing a conventional mortgage, you do need a 620 or higher, and even this costs a lot more than a FHA loan at 620. Here is a comparison with even 20% down. FHA loans vs Conventional loans with 20% down - A rude reality. Besides, you even have MI company issues, that could still deny the loan with a 620 credit score.
Overall, you might want to get into a home as soon as possible. You might have a loan officer that wants to help and can with the lower score, but don't forget, will it cost you more in the long run. You want to deal with a loan officer that will break this down and show you both sides, both comparisons. And be careful of broken promises, because not everyone has integrity and or is truly out for your best interest. This might sound negative, but this is a fact, from examples of past clients that have dealt with broken promises.
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Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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Follow me on:
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Thanks for the info on credit scores. Active Rain is great to find info on all real estate related items.
I've read those responses by realtors....they tell people what they want to hear and then hope some of them will pan out. But it's mis-information which hurts us all. Buyers read this and assume they can do it too.....I've been guilty of searching the internet untiil I hear something I like...human nature.
This is a great breakdown of how many factors can affect your credit score. it is great to know there are options out there for the buyer with a lower credit score. Thanks for sharing.shinnini
When someone contacts me and they have been told that they have been advised that they need a minimum credit score that sounds fairly high, my first question is
What is the "mortgage company"?
There are still a lot of entities that are trying to broker loans who have very limited sources.
Great breakdown. I think we need to let our clients also know if they go with these companies they will be jumping through major hoops to get that loan and they may not close by the closing date. I just closed 2 this summer with mortgage brokers my clients found. They were anything but easy.
EDWARD & CELIA.... . my pleasure and yes, Active Rain is a great resource for many things. Just be careful of what you read. ;o)
KAREN... . bingo, people tell buyers what they want to hear now, and then will worry about the problems later.. or the delays.. or if it's denied. What ticks me off is that many don't go into details upfront, explaining the pros and cons, and sometimes their chances. thanks
PAT.... . thanks, but this is just a basic breakdown. There is a lot more involved and to go over, but I didn't want the blog to be to long. thanks
LENN.... . a very good point. that many lenders have limited resources... or, just aren't good at what they do period. But as you are leery with those that might state higher credit scores, I am very leery of those that state much lower credit scores. I had one loan officer tell me how much you could go lower, how great it was, etc, etc.. I asked him how many that he closed with that specific lender and he said... none. He hadn't tried them yet... yet, he was telling me what could be done. How is that possible? What are you going off of then? aaaaarrrggghhhh
ANDREA.... . yes, there could be many hoops to jump through. And another thing that is never mentioned, is that credit might need to be repulled in a certain time period, and if so, what happens if the scores go lower? In regards to these two loans that closed, what were the major issues? thanks
Good info!
Thanks for the tips about rasing a close score. Many brokers would just say too bad. I am glad there are folks like you that believe in solutions.
Jeff - great info and very useful tips for someone who may be struggling to buy a home. I reblogged it to my blog as well so my readers can benefit. Thank you! :)
Great information for consumers Jeff. Often I see that buyers are trying to educate themselves, but simply don't get the right information, (your example in the first paragraph).
It seems a lot of the time the information for consumers is incomplete, which as far as I'm concerned is more hurtful than helpful. If you do have a lower credit score, yes you may still manage to qualify for a loan, but at what cost?
I'm glad you're providing them with the bigger picture. Educated buyers make sound decisions. We're in the service industry and we should all be shooting for that.
Denise
Joey.... . thanks for the compliment and for stopping by.
JOE.... . sure, it's easy to say that, and even though I also like helping people, if I can get them to close, it's a pay check also. I look at it from a few didn't perspectives.
KEVIN & MONICA... . I think there are many that are struggling, and scores are still going up, with more penalties. Also, thanks for reblogging this and passing it along.
DENISE.... . that is a concern of mine, that many buyers do try to educate themselves, and sometimes come across misinformation, or someone that makes it sound easy, when it's not. And yes, in many cases, the information is incomplete, and that is more hurtful. Maybe not now, but prior to closing, when someone drops the ball... all the loan officer is get egg on their face. What about everyone else involved? Thanks for the kind words and for the compliment.
Great tips and with the lending market changing every 5 minutes it's tough to tell buyers what they qualify for. Always have a good lender around!
That is why Realtors should stick to selling houses and mortgage professionals should stick to loans. Good info!
Jeff: I think this is such a helpful post that I've re-blogged it. THANKS for sharing.
Good article and I am glad you mentione Loan officer or realtors because it seems that in the media that only the loan officer contributed to this mess we are in but great article
Great Post Jeff. Worthwhile read for sure, and something alot of people take for granted.
Good stuff to know, the more information the better. There is so much misinformation out there, posts like this really help.
Jeff,
Good post. There is plenty of disinformation out there and the buyer needs to be educated. I like that you are being upfront about scoring. My feeling is that if you are under 600, the lender really doesn't want the loan even if it isn't in their guidelines and they make it hard work to get to the escrow table to sign.
Patrick
Jeff - I know that there's an awful lot of misinformation about the availability of mortgage financing these days. Thanks for helping to cut through the garbage.
TIM... . are they changing that quickly? I thought maybe just once every 24 hrs... lol Yes, so true about the changes and having better than just a good loan officer. And thanks for the compliment.
BRYCE.... . I agree with that statement for the most part. I am seeing too many realtors on Trulia answer mortgage related questions...
KAT... . my pleasure and thanks for reblogging this, and for the kind words.
GENE.... . you should have read my blog from 2 years ago. I blamed about 7 different kinds of people, associated with mortgages and real estate. And I found this blog very easily because I remember writing it on my b-day over 2 years ago... lol Sad, but true. Here is the blog.. Help, I can't make my mortgage payments PS... thanks for the compliment.
DANIEL.... . more people take this kind of stuff for granted and I truly believe that part of our jobs is to be educators... thanks and thanks for the compliment.
JAMES.... . I don't want to say that my information is always right... but I will say that it is accurate, unless it's my opinion. But yes, there are many factual blogs out there with lots of misinformation... very sad and scary.
PATRICK.... . funny that you said that if the score is under 600, that the lender really doesn't want this loan. And in many cases, they don't. Each lender gets evaluated and this kind of loan could hurt their so-called 'report card'. Which hurts their credit rating and the ability to be approved by other investors out there. And that they could lose their FHA license. It's a huge risk that some are willing to take, even in today's market. thanks for pointing this out and thanks for the compliment.
Jeff - Great Post! Thanks for clarifying because there is a ton of misinformation out there on this topic.
Jeff, thank you for allowing this to be re-blogged. As usual, you break things down in a completely understandable fashion and are a wealth of information for first time (and 2nd time!) home buyers.
Great information as usual Jeff! I'm going to pass this along to my friends in the Dallas TX area!
Brian.
Well written. Too many folks try to make it sound so easy - just to get the client in the door. Then get to work. Or sometimes blow them off because they are not the perfect borrower. There are many options still, but we as mortgage professionals, need to know what it is and how it works!
... boy I hate broken promises, and I still hear of many Realtors giving them out freely making loose statements like that guy about 'how to get an approval', and ending up with disappointed clients.
Will they ever learn to just focus on their expertise, and leave the loan approval assumptions to the Mortgage pros...
Jeff, Absolutely wonderful information although I have to say there are STILL scammers out there as you well know who will give just about anyone a loan. Thanks for always continuing to point out the Red Flags, they will be invaluable in helping some people!
JASON... . I know you do, from talking to you, and what a few of your clients had to go through in the last year. thanks
MICHELLE..... . I agree, and it really irks me. Sure, there are things that can be done, but that is all that is usually mentioned... and not the true education that is it good or wise to proceed, or to make your credit portfolio better. thanks
KRIS.... . my pleasure and thanks for those kind words... and thanks for reblogging this.
BRIAN & MARIE... . please do, because we need to get this basic information out to others.. and thanks for reblogging this.
NICHOLAS..... . hence why I decided to write this, because many do make it sound too easy. Gee, it's even difficult in some cases when you have 620 or above. thanks
SHELDON.... . yes, I truly hate broken promises... and in regards to realtors answering mortgage questions, no, many will not learn. And in my honest opinion, I don't think many care or even think about it, which is even worse. They just want to be in front of the client, trying to drum up business, no matter at what cost. Just my opinion, but what else could it be attributed to? Common sense certainly has left the building. thanks
CAROLE.... . not sure if I would call them scammers when doing this... but certainly those that will deceit others. Is that a scammer... yes and no. Please read my comment to Sheldon above. I just think some don't even think about their answers, hence no common sense. So is that a scammer? And thanks for the polite compliment.
JEFF- Thanks for the mention. The "Other" loan officer left them hanging on a Friday basically worried sick about their sudden drop in their credit score- until Saturday when I had them contact you.
You put their minds at ease while you got busy working on their problem. This information is so important when a client has their heart set on a particular home and their lives are basically on hold waiting for solid information from a loan officer. THANK YOU Jeff! They are moving forward and hopefully this story will have a happy ending.
I think that as long as you can show a stable employment record of longevity....an adequate amount of money in your bank account.....a decent credit score ,.....then you should be able to qualify for a loan...depending on the purchase price of the home...there's a lot of behind the scenes stuff that we don't always know about causing the score to effect the loan not getting approved and we as Realtors usually can't get every bit of private info the LO's won't tell us about for some reason.
Jeff, once again great information. Worthy of a re-blog.
this is why i make the point of referring these questions to qualified lenders. i think too many agents push to be everything for their clients but they stick their nose into somewhere it doesn't belong! i'd rather not get myself into that kind of liability so i put my folks into contact with lenders to find out what they can afford. then we start working together after they pre-qualify! if they don't pre-qualify and have some work to do, my lender has put them on the path, they fix things, then come back to me after pre-qualifying because they know i HELPED them once before!
Thanks for sharing Jeff!
"And if loan officers and or realtors say, don't worry, you can refinance later, then WORRY !!!" Life has funny ways of changing and sometimes it isnt for the better. Do today what you know you can do tomorrow is great advice! I agree this is a reblog. Do you lend in SC?
thank you for the input i never claimed to be a credit guru but all the info that i get from active rain helps a lot
Good morning Jeff, So true... Yes some lenders can do less than 620, but the rate can be ugly. Our jobs are as trusted mortgage advisors, not order takers, Yet I still see so many rookie mistakes that kill deals. Yes you can always refi a loan, but when rates are already at 40 year lows, what are the chances of it being worthwhile once your score climbs... Probably 0!
You said it well. Even at a wreck up score in the 500s - God knows maybe there is a loan out there (I dont know). But Jeff, I think it's time for loans to be credit driven. Your post inspired another new post of mine - soon to come.
ALLISON... . my pleasure and thank you for the referral. I guess what irked me is the fact that she ends up calling them on Monday, to talk about working on the score, when she could have done that when she first told them about their scores. Let's just get the deal done and go from there. thanks and thanks again for the referral.
NEAL... . that sounds like the perfect loan... ;o) Seriously though, even those loans have become tough now. At least not what I have experienced, but from what I have heard from other loan offices. Maybe they just aren't explaining the problems in details, such as, it could have been an appraisal issue. Even though the clients information is private, I still go over a lot of it with my realtors, giving them information to as why and what. I see no problem with that. If I had to put my finger on it, some of these loan officers just don't tell you because they want to feel above the realtor, in control, or... that they might just not know the answer. hhhhmmm.. thanks for stopping by.
GABE... . thanks for the polite compliment and for stopping by.
MELISSA.... . I agree, that a qualified loan officer should answer these types of questions, and not a realtor. They only think they know through their loan officers, but they don't usually know the details. Besides, a qualified loan officer, that can be a tough one also. thanks
LAURA... . you stated, "Do today what you know you can do tomorrow is great advice!" - this is so true, yet so over-looked on many issues. We listen to the media and other so-called experts stating that you could do this and that tomorrow or later on. Damn, I wish I had those crystal balls. And yes, I can do loans in SC. thanks
TERRELL.... . my pleasure... just a FYI... be careful of all things on AR. I have seen some misleading info from some on here also. It's easy to make any blog look and sound credible. Just food for thought..
ROBERT.... . and good morning to you too... still reminisce about those Columbia National days. Spoke to Angradi about a month ago. In any case, you are preaching to the choir. Order takers in my opinion is what hurt some of what has happened in recent years. And yes, they are still out there. Take the loan now, worry about the issues later. .. or worry about explaining to the borrowers the process later. And in regards to refinancing and where rates will be? This is never brought up, when those loan officers say..."just refinance later"... lol thanks for your input.
LOREENA.... . yes, I am sure there are some loans out there... but some get excited and let down at closing, because they were told that they could still do a loan at a 560 credit score. But wait, it's costing me how much to do this? Work on the credit, then buy. Thanks and I look forward to your new post. Please keep me posted.
Jeff,
As always great post. Thanks,
Good advice in this tight lending market. Especially getting in a home now if you can.
Jeff I'd love to see that 535 get done! I'm not sure I'd try even if someone said it could, haha. Might take the time of 15 loans!! I know you know what I mean. Anywho, the old "refinance later" line always ticked me off so bad. What people were really saying was, "You don't really qualify, but moreso, I need a paycheck, do the loan!!"
Jeff--Thanks for the breakdown on what can be done out there and what really isn't practical.
MARK.... . thanks for the compliment and for stopping by.
GENE.... . actually, the biggest issue in getting into a home now are the appraisals. If they have a 620 or higher, if I qualify them and say they can get a mortgage, I am not having any problems. I think it does come down to asking the right questions up front. thanks
STEVE.... . I still remember doing 500 credit scores 1 year ago. As long as it made sense, and the credit still met FHA guidelines... we were still closing these in-house. But as you and I know, usually, if you have scores under 600, you usually have some sort of credit issues. And yes, those really tough ones, are like doing more than 5 to 15... good point.
In regards to those loan officers that said... don't worry, just refinance later... and then usually gave false hope and misinformation, yes, that ticks me off big time. thanks
TAMARA.... . my pleasure and thanks for stopping by.
SONJA.... . thanks, I am glad people are getting this, that things can be done, but that it costs a lot more... and in most cases, will cost more over the life of the loan. And that old saying of, "don't worry"... aaarrrggghhh... such a HUGE Red Flag.... thanks...
Great blog Jeff. It is a good explanation to buyers who think that they can just refi and have a better rate next year.
Jeff -- how does paying off a collection account lower a credit score? I would think a consumer should pay off anything negative before applying for a loan.
MARK... . thank you very much. Yes, that is one of my pet peeves when another loan officer is using that phrase to get them to use them.... hey, don't worry, just refinance later and not explain the details of what could happen. Just like what happened with the subprime borrowers... many loan officers told borrowers not to worry, jsy refinance in 6 months to a year. But never sharing that hey, things could change in that time... rates, your equity position... etc, etc
BARBARA.... . there are a few factors involved... the main one is if you have collection accounts 12 to 24 months or older, more so, 24 months and older... and you pay off that creditor, when that creditor reports it back to the credit agency, it's updated with a most current date. When this happens, it treats it as new credit, not an old collection account, which then can change your score for the worst in most cases.
In regards to your statement... "I would think a consumer should pay off anything negative before applying for a loan."
Yes, if it's like 2 months or longer prior to settlement... but I would not want to take that risk, hence why I have clients pay these off at closing. I hope this helps some. thanks
Jeff is right....
The FICO Scoring Model will ding you harder for a recent paid collection than an old unpaid..... In most cases.
I suggest to all of my clients to NOT pay collections until AFTER they close.
Great article w/ good information. Whenever I get a buyer who says they qualify for a loan w/ low score I ask if the broker gave them a break down sheet with their credit score(use to ask for the truth in lending statement but got too many blank stares so I rephrase the term & they get understand better), I take a copy to a broker I trust & ask for an unofficial opinion to make sure they aren't being scammed. If legit no sweat but if the broker says looks a bit shady, I get back w/ my buyer and arrange a sit down with their permission to discuss the details closer. Doesn't happen often but every now & then - get a HUH??? Better safe than sorry later.
Great post as usual. It's never just cut and dry with a mortgage. You need a true professional to help.
You are an excellent resource! Good luck in all ~ Brad
TOM.... . thanks Tom... I suggest the same. What's sad is that I have had some clients come to me after they left a previous loan officer/lender for numerous reasons... and one big thing was that their loan officer told them to pay off the collection accounts before closing... and this was done when they were pre-qualified.. 1 1/2 months before closing... not a good idea or advice... too risky. thanks
GEORGE... . In regards to the TIL, the truth in lending disclosure... I think it's a bad idea to shop on APR... there are several reasons why, in which I have written about. The best method is the good faith estimate. .. that's if it's accurate and the loan officer was truthful about their figures... I have seen many loan officers just reduce the escrows, to make the total fees look cheaper. Just be careful of getting involved, even if you think you have a trusted loan officer. Overall, thanks for the compliment.
LYN.... . it definitely isn't cut and dry in today's market... lol And thanks for the polite compliment.
BRAD.... . thanks for those kind words...
Jeff,
Here is some more informations for your readers.
Credit scores are divided up into 5 areas:
1) 35% of your credit score goes to how well you pay your bills.
2) 30% of your credit score goes on how much you owe. Keep your credit card at 30% of the limit or less.
3) 15% of your credit score is based on how long you have had your credit longer is better.
4) 10% of your credit score is based any new credit. Don't get sucked in on all these new come ons.
5) 10% of your credit score is based on the right mixture of credit (at least 2 revolving credit and at least 1 installment)
RCS Credit Solutions not only permanently deletes derogatory items from a person credit report but also helps people establish new lines of credit if needed. These new lines are established not for credit but to build credit. We are attorney owned, registered with the State of Texas Secretary of State, and we are bonded. We have the best money guarantee in the industry, if you are not satisfies with our service you get your money back minus $50 for each derogatory account permanently removed from your credit report.
So don't send these less than perfect credit persons to someone else, sendthem to me and I will restore them to credit worrithyness in three to six months. This means money money in your pocket.
Luis Madrid
National Consultant
RCS Credit Solutions
214-628-8511 Ofiice
214-679-8577 Cellular
Jeff,
Great info. I did not know it was not good to pay off collection accounts right before buying a home. I learned something new thanks to you.
Hi Jeff:
I wish I would have read this prior to trusting a mortgage broker that I have been working with for the past 7 months while waiting for our short sale offer to be accepted. We are finally set to close, and the broker has just informed me that my credit score is only 614 or 618 (depending on the moon) and doesnt' meet the 620 criteria to obtain a USDA Guarantee loan. He had me pay off the few collection items that I had back in October. I think he was unaware that this may heed or reduce my score further. He also had me transfer my vehicle loans off of my credit. I'm wondering if this may have had a detrimental effect on my score as well. Balls in my court now though - we're already living in the house & if we don't a loan, our family has to move again. Any recommendations?