Home Buying with Less Than Perfect Credit
By Jon Dougherty
To paraphrase, bad credit can happen to
good people.
Not everyone has the stratospheric,
perfect FICO credit score of 800 plus points.
FICO is a trademark of the Fair Isaac Corporation,
the world leader in credit scoring. Based
in Minnesota with 3,000 employees and
more than $800 million in annual revenues,
their clients include 90% plus of the top 100
U.S. banks and 65% plus of the top 100
banks in the world!
They have your number – literally and it
will impact on how much your home loan will
cost, or if you will be able to get one at all.
FICO scores range from 300 to 850
with the median score in the U.S. being 723
(www.myfi co.com). However, the majority
of scores are between 600 and 750. (If you
meet someone with a score of 850 be sure
and email me a note. I have yet to meet one.)
Generally, mortgage lenders consider
a 750 plus score as great, 700 plus as very
good, 680 plus as good, 620-640 plus is ok
and below 620 will need some work.
While the FICO mathematical model is
proprietary (some say akin to voodoo), the
five general categories that are used to determine
your score are weighted as follows;
35% for payment history, 30% for amounts
owed, 15% for length of credit history, 10%
for new credit, and 10% for types of credit
used.
Just pay all your bills on time, don’t have
too much credit and all is well. This is easier
said than done as evidenced by the $105 Billion
dollar increase in U.S. consumer debt in
2006, according the Federal Reserve Board.
So if you have less than perfect credit
can you still purchase a house? According the
banks and mortgage lenders in Lee County
the answer is absolutely yes.
Their advice:
-When shopping for the best mortgage
terms DO NOT let lenders run your credit over
and over again. Every time your credit is run,
your score drops a few points. If you make 10
applications, your score might drop from 30
to 50 points – overnight.
-Get your own credit report through
one of the reporting agencies; TransUnion,
Experian, Equifax or go to myfico.com. Your
score is not impacted when you run it. Take
your report with you and go talk to a lender
in person.
-Don’t hide anything. Bring your pay
stubs, your tax returns, saving statements,
work history – everything. The more your
lender knows, the more they can help.
-DO NOT start trying to fix your credit
yourself while you are trying to get a mortgage.
Many times consumers make their
credit worse by accident. Lenders deal with
credit issues everyday. Timing and knowledge
are important. Get advice and do what will
work best for you and your mortgage.
-Nothing is beyond repair, including
bankruptcies and foreclosures. Some things
just take a little longer. If you need to wait a
few months to continue improving your score,
your lender can tell you the best ways to do it
to improve your mortgage application. In the
mean time, you can still be looking for your
new house.
Also, perfect mortgage payments on
your new house will be one of the best ways
to keep increasing your credit score.
So don’t be embarrassed about not
having perfect credit, most of us don’t. Life
happens. Job layoffs, family emergencies and
more can cause late payments. Many can be
explained in your application. Others can be
improved.
Remember that Rembrandt, Ulysses
S. Grant, Henry Ford, Walt Disney, Henry
John Heinz, Tom Petty, Johnny Unitas, Burt
Reynolds, Francis Ford Coppola and Donald
Trump all went bankrupt and then rebounded
fi nancially.
Then there was L Frank Baum who
drove his store into bankruptcy. He decided
to change careers and wrote the “Wizard of
Oz.”
With your lender’s help you can follow
your road, yellow-brick or otherwise, to an
emerald palace of your own.
Beth Snipes is a freelance writer living in Auburn. She can be reached at bsnipesatl@mindspring.com.
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