08/26/2013 by Clair Devers
The following is a guest post by Candy Williams of Ameripro Funding with some advice on how to prepare your credit for the mortgage process. Candy has built a great reputation with New Braunfels home buyers by sticking with them through the whole experience. She has an excellent grasp at how each step of the process works and conveys that information to her clients each step of the way. I welcome her advice and hope she will write for us again soon! -Clair
———————————————-While considering a home purchase, you’ll often think of what New Braunfels neighborhood you want to live in, which school district you want your children to attend, how many bedrooms you need and how much lawn you’re willing to spend the weekends mowing. Less time is usually spent preparing your finances and credit for the inevitable mortgage application. However, I would argue that it’s crucial that the planning for the mortgage be as thorough as the plans for the house.
By law, you can pull your own credit score from each of the bureaus once a year. The website, www.annualcreditreport.com, will direct you to each of the bureaus for your free report. The score will not be included but can be purchased. However, the score is less important than the content of the report, until you’re ready to apply for a loan. Even though the score you pull as a consumer will be different (probably higher) than the score your lender will pull, it will still give you a good indication of where you stand.
I would also recommend joining a credit monitoring, or anti-theft program. These programs are offered by different organizations, such as credit agencies and banks for less than $15 per month. They can provide monitoring for fraud, identity theft, errors and late payments. You can get alerts for any unusual activity on your credit report, so that you can catch and fix issues before they become problems.
While the exact formulas for determining credit scores are closely guarded by the credit reporting agencies, it’s widely accepted that there are five factors that impact the score:
- Credit History. We all know that payment history is important. In actuality, paying your bills on time is only about 35% of your score. This is still the most important dynamic of the equation. You should never allow your payments to be over 30 days late. These “slow pays” take about two years to stop impacting your score.
- Less commonly known is the importance of the ratio of your credit card balance to your credit card limit. These balances should always be kept under 50% of your available limit. If you’re planning to apply for credit, reduce that balance to be under 20% 2-3 months before applying. This makes up about 30% of your score. This is generally the easiest way to raise your score.
- The length of your credit history makes up about 15% of your score. This is why it is best to keep credit cards that you’ve had for a while, even if they have higher interest rates than you’re other cards. You’ll sometimes find that transferring balances to zero Interest cards will damage your score while saving you money on interest, which could end up costing more in the long term.
- Ten percent of your credit score is derived from the combination of credit you have. The best recipe for a good score is a combination of installment loans, like auto loans, credit cards and mortgage. It’s important to have 2-4 credit cards, managed well, but you don’t want your report to be overloaded with credit card debt.
- Inquiries make up about 10% of your score. Too many inquiries can have a detrimental affect on your credit.
If you’ve decided that a home purchase is in your future, have your loan officer review your credit and finances at least six months before you’ll be ready to buy so that you can get a head-start on your mortgage planning. You’ll be told if there is anything you need to work on to improve your position to get the best mortgage for your situation.
Candy Williams, Sr. Loan Officer
NMLS #187126
2012 and 2013 Texas Monthly Five Star Professional
Company NMLS #131699
210-269-1774cell
210-547-3490office
210-547-3489fax
email:cwilliams@ameriprofunding.com
Visit my website and apply online athttp://cwilliams.ameriprofunding.com
Summary
Article Name
Credit for Mortgage Planning in New Braunfels
Description
A fundamental step in home purchase planning should be a careful review of your credit.
Author
Candy Williams
FAQs
What FICO® Score do mortgage lenders use? Mortgage lenders typically consider the 3 FICO® Scores used by the major credit bureaus, FICO® Scores 2, 4 and 5. This differs from the credit score that lenders use for general lending decisions, which is most typically the FICO® 8 model.
What is the minimum credit score to buy a house in Texas? ›
Loan Options for Bad Credit in Texas
The minimum credit score for an FHA loan in Texas is typically 500, though better terms are often available for scores of 580 and above.
What credit score do you need for Keller mortgage? ›
To qualify for a mortgage with Keller Mortgage, you must have a minimum credit score of 640. Down payments start at 0% for USDA and VA loans, 3% for conventional loans, 3.5% for FHA loans and 20% for jumbo loans.
Is $3,000 enough for a down payment on a house? ›
“Well, $3,000 is not enough for a down payment on most houses,” says Jill Gonzalez, an analyst with WalletHub. “The lowest percentage of down payment required is 3.5% for an FHA loan. So $3,000 would be enough for an approximately $85,000 loan, although that's way below today's median home price.”
What credit score is needed to buy a $300K house? ›
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
Do mortgage brokers do a hard credit check? ›
You will present this when making an offer for a property. To come up with a mortgage in principle, a lender will have to conduct a soft or hard credit check, although most of them will conduct the former.
What credit score do I need to buy a 200 000 house? ›
Mortgage lenders typically want to see a score of 620 or better before approving a conventional mortgage.
What is the average credit score in Texas? ›
The average credit score in Texas is 680. When you think of the Lone Star State, it usually includes oil wells, football, barbecue, and Stetsons.
What credit score is needed for an FHA loan? ›
FHA minimum credit score
If you put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you'll need to make at least a 10 percent down payment.
Does your realtor know your credit score? ›
In order to legally obtain a credit report, a real estate agent or leasing employee must first obtain a) permission to run this credit report and b) personal identification information required to get an accurate report. This permission is typically obtained in writing, often in the application to rent itself.
The most commonly used FICO Score in the mortgage-lending industry is the FICO Score 5. According to FICO, the majority of lenders pull credit histories from all three major credit reporting agencies as they evaluate mortgage applications. Mortgage lenders may also use FICO Score 2 or FICO Score 4 in their decisions.
What FICO is used for mortgages? ›
The credit score used in mortgage applications
While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage: FICO® Score 2 (Experian) FICO® Score 5 (Equifax) FICO® Score 4 (TransUnion)
Can I afford a house on 70k a year? ›
One rule of thumb is that the cost of your home should not exceed three times your income. On a salary of $70k, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don't have a lot of other debts.
What is a good down payment for a $250000 house? ›
Putting down the standard 20% can help you avoid paying mortgage insurance and interest and could save you thousands of dollars. So you can expect to pay between $7,500 an $50,000 as a down payment on a $250,000 purchase. Keep in mind, besides the down payment amount, you will also have to factor in closing costs.
How much is 3.5 down payment on a $400,000 house? ›
Meanwhile, an FHA loan requires a slightly higher down payment of $14,000, equivalent to 3.5 percent of the purchase price. Home buyers using either a VA loan or a USDA loan can qualify for a mortgage with zero down payment on a $400K home.
What is a good credit score for a broker? ›
For freight brokers, scores above 86 are considered excellent, signaling a low risk of delayed payments. Scores ranging between 70 and 86 are considered a moderate risk, and anything below 70 is seen as a high risk.
What is the minimum credit score for a mortgage? ›
Credit score and mortgages
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
Is FICO 8 or FICO 9 better? ›
Versions 8 and 9 of FICO scores are similar, but FICO score 9 is generally considered the more forgiving of the two for a few reasons: With FICO 9, third-party collections no longer hurt your credit score once those debts are paid off. FICO 9 treats medical collections differently than other types of debt.
What FICO score do you need to buy a house? ›
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
