Home Buyer Credit Report and FICO Score Basics
A Home Buyer’s Credit and FICO Score determine if a buyer can get a loan. On your credit report, there is a number that reflects your credit history. Each person’s credit report has a numerical rating between 200 and 850 called the FICO Score. The higher the FICO Score, the better the credit.
A credit report includes the dates, account numbers, and payment history of past and present loans, credit cards, collections, and liens. The high amount borrowed, current amount owed, and if the account is open or closed.
Some Credit Unions and private institutions do not report to the Big 3 credit bureaus. The FICO Score is determined by the items listed below and an undisclosed formula by the Big 3 credit bureaus: Equifax, TransUnion, and Experian. Your FICO Score is not included in a free credit report.
What Determines Your FICO Score:
Short Answer- a computer. Long Answer- no one really knows what the EXACT formula is. The list below is FACTORS used in calculations.
- How much do you owe? (compared to credit available)
- Are you over-extended? (is everything maxed)
- Open or Closed Accounts? (how much could you charge later)
- The length of your credit history? (older is better)
- How much new credit do you have? (did you get a card to charge later)
- What types of credit do you use? (variety is better than 6 car loans)
- Do you have any late payments? (once late vs. habitually late)
- Do you have any collection accounts? (medical vs. other)
- Do you have a BK, Foreclosure, Government Lien, or a Short Sale? (These have different guidelines for a home loan)
Why FICO Scores Matter
FICO Scores matter in MOST loans because Lenders only keep 1% of the loans they originate, and 99% are sold to investors on the Secondary Market. Fanny Mae has established guidelines for the Secondary Market, and most lenders follow them, so their loans are saleable.
Past BK’s, Foreclosures, Tax Leins, and Short Sales don’t conform to Fannie Mae Guidelines- with exceptions. Ask a lender your questions. Programs are always changing. There’s private loan money available- usually at higher interest rates.
Exception Examples: BK’s – you can get a home loan after 1 year (from date of charge-off) if you have two ‘good-pay’ open lines of credit; Short Sale’s- You may buy a house immediately if the payments were kept current; Defaulted Loans- you’ll need to wait 2-7 years depending on the type of loan you want now (VA, FHA or Conventional) and your down payment amount.
CREDIT REPORT RANGE GUIDELINES
|Credit Score||Rating||% of People||Impact|
|300-579||Very Poor||16%||Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.|
|580-669||Fair||17%||Applicants with scores in this range are considered to be subprime borrowers.|
|670-739||Good||21%||Only 8% of applicants in this score range are likely to become seriously delinquent in the future.|
|740-799||Very Good||25%||Applicants with scores here are likely to receive better than average rates from lenders.|
|800-850||Exceptional||21%||Applicants with scores in this range are at the top of the list for lenders’ best rates.|
CHECK YOUR CREDIT REPORT!
A recent news show reported that 25% of all credit reports have mistakes. They also said that 5% of credit reports have major errors affecting the ability to get a loan, a low-interest rate, and even housing. Home loans, vehicle loans, and home insurance are all based on your FICO Score.
Get a FREE credit report yearly and check for and dispute errors. Our experience is that most credit repair companies fail to satisfy their customers with their efforts. Correcting a mistake is not hard, so you may want to contact creditors and reporting agencies yourself. Know that when trying to correct Identity-Theft Fraud, it is not easy and can take years!
Meeting With A Lender
When you meet with a home lender, they charge $50-$100 for the full credit report, including FICO Score. If you have a credit report take it with you. Avoid paying for a report for as long as possible. If you do pay for a Credit Report, YOU OWN IT- so get a copy! A lender will talk to you about your home buying ability and if any work to improve your credit score is necessary.
Disclose negative credit items to a lender even if they’re not on your credit report. It’s better to tell the lender everything avoid surprises down the road- your money might be at risk later.
We suggest you choose an In-State, Live-Body, and Experienced Home Lender. Banks seem to take forever, and closing late could cost all parties money.
Rules of Thumb:
- Banks, Credit Unions, and Online Lenders charge less for interest. They have fewer options for loan programs. If you fit in the One-Size-Fits-All Box, investigate using one. Know that they are not full-service lenders, so the timing for documents, funding, underwriting, and recording can get wacky and may add many days at the end of the process. There will probably be additional charges for over-night deliveries a few times, and time zones can be a factor with wiring funds.
- Mortgage Bankers in Nevada are the best choice you can make if rates are comparable. Their fees will be reasonable, and they usually have in-house underwriting so they can close quickly if needed. People can deliver documents in a crunch.
- Mortgage Brokers have a larger variety of loan programs because they work with more sources for money. Their fees are higher than a bank or a mortgage banker.
- Hard Money Lenders have a purpose- they are for people with decent credit who have extenuating circumstances. Their fees are high.
TIPS- Take your current credit report copy with you to the home lender to possibly save some money. Citi-Bank Card Holders can get a free credit report each year with your FICO score on it. www.cardbenefits.citi.com
Blog Written By Kurt Grosse, Realty One Group If you are considering Southern Nevada Real Estate, feel free to contact us. We can refer you to a couple of lenders we still like after all these years.
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