fbpx
Thoughts on Credit and Getting a Mortgage
Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis. Credit bureaus evaluate people’s credit worthiness using a FICO score. The higher the score the better the borrower’s credit. The mortgage rate charged to […]
Thoughts on Credit and Getting a Mortgage
Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis. Credit bureaus evaluate people’s credit worthiness using a FICO score. The higher the score the better the borrower’s credit. The mortgage rate charged to […]

f6h1k2RBIkSaD8PQsUwSXg.jpg

Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis. Credit bureaus evaluate people’s credit worthiness using a FICO score. The higher the score the better the borrower’s credit.

The mortgage rate charged to a borrower depends on their credit score. There is an inverse relationship between credit score and interest rate changed. The higher the score the lower the rate and the lower the score, the higher the rate.

Two separate buyers with the same income, purchasing the same price home may both be approved by the lender, but they may be charged different interest rates based on their credit scores.

You could save thousands of dollars over the life of a loan by improving your credit score by just a few points. A $350,000 mortgage at 3.5% has a principal and interest payment of $1,571.66. By improving your credit score to qualify for a 3% rate, it would save $96.04 a month.

Over the life of the mortgage, that would save $34,575 in interest. Improving your credit score to shave 0.25% off the rate would make it worthwhile.

Credit utilization is the percentage of total credit used compared to the total credit available. If you have a $2,500 balance on a credit card with $10,000 available credit, your utilization rate is 25%. Ideally, it should be 10% or below. This ratio accounts for 30% of a person’s FICO score.

Credit utilization is calculated using the balance on the monthly statement so paying it off in full every month could still result in a high CU score. Some credit counselors suggest paying down the balance before the end of month statement comes out. A trusted mortgage professional can make specific recommendations like how to improve your credit utilization.

Your credit score can be adversely affected if your credit limits are lowered. You may have the same monthly outstanding balance you have had for years but it now becomes a larger percentage of your available credit and your score goes down. In the example used earlier, if the available credit was lowered to $5,000 and your balance is $2,500, the credit utilization is now 50%.

Payment history is the largest contributor and counts for 35% of an individual’s FICO score. It is an indication of your likelihood of paying on time and as agreed for your debt, especially mortgages, credit cards, student and car loans, among others.

A big shock to some borrowers is to find out that while they may have never actually incurred a late fee because of a grace period, their score could be dinged because it was not paid on time of the actual due date.

Foreclosures, deeds in lieu of foreclosure and bankruptcies will affect a borrowers payment history as long as they appear on the credit report.

Americans are entitled to a free annual credit report by law from the major credit companies: Experian, TransUnion and Equifax. AnnualCreditReport.com is the source for these federally authorized reports. During the Covid-19 pandemic, they are offering free weekly reports.

Even if you are not buying a home or getting a mortgage currently, it is a good routine to check your credit report periodically to discover signs of identity theft early.

LIST OF BLOGS

In Search of a Big Mortgage

The Fannie Mae and Freddie Mac loan limits are adjusted annually to keep up with cost of living but with the appreciation experienced in many markets, it may not be enough. When the conforming loan limit is not enough, qualified buyers can turn to a jumbo loan. The...

Credit Utilization Affects Your Score

Credit utilization reflects how much of your available credit is being used at a given time. Lower credit utilization indicates that a borrower is not heavily relying on their credit and that they are using their credit responsibly. Is calculated by dividing your...

Larger Payment, Shorter Term, Bigger Savings

Some people consider a house payment as basic as monthly utilities but with a plan and some discipline, you can be mortgage free. Consider a person borrowed $300,000 at 3% for 30 years, the principal and interest payment would be $1,264.81 and at the end of 12 years,...

Buy Before You Sell Options

The decision to buy first or sell first, has always been a little of the "Which came first: the chicken or the egg?" type of question.  Is it better to buy another home before you sell your current one or sell the current one before you buy the replacement? Some...

Have you checked these lately?

Homeowners know the need to periodically check certain things around the home to ensure that things operate properly and efficiently. If maintenance is required, it may be less expensive to take care of it early rather than waiting until it is not working at all....

Uncle IRRRL wants to refinance your VA loan

You don't have to have an Uncle IRRRL but you must be a veteran with a current VA-backed home loan. IRRRL is an acronym for Interest Rate Reduction Refinance Loan. To refinance with this program, also called the VA Streamline, the loan must provide a net tangible...

Buy Before You Sell Options

The decision to buy first or sell first, has always been a little of the "Which came first: the chicken or the egg?" type of question. Is it better to buy another home before you sell your current one or sell the current one before you buy the replacement? Some buyers...

A Lesson from a Pro

A well-known professional home stager, recently, decided to sell the 4,000+ square foot home which she lived in with her husband.  It was certainly well maintained and by most standards, could have gone on the market immediately.  However, she still went through a...

No Need to Make Common Mistakes

A successful home sale, considered by many owners, is to maximize their proceeds in the shortest time with the least inconveniences.  Just because it is a seller's market doesn't mean that homeowners can shortcut some of the steps that make it happen and they...

RECENT POSTS

A Lesson from a Pro

A well-known professional home stager, recently, decided to sell the 4,000+ square foot home which...

ABOUT  TWENTY
THREE HOMES

The Twenty Three Homes are one of the premiere real estate groups locally, nationally and internationally, specifically dealing with high-end properties and exclusive clientele. Partner with Keller Williams Twenty Three Homes are full service real estate experts whose clients benefit from the custom tailored, hands on service while receiving all the exclusive amenities and resources of one of the most established and respected firms in the business.

GET IN TOUCH