Mortgage Credit Score

A high mortgage credit score gives homebuyer's added leverage in obtaining a low-interest home loan. When home buyers shop for financing, the first thing lenders look at is the credit score. Consumers with numbers ranging from 700 and up are considered good risks; while numbers on the lower end of the scale, less than 499 to 600, are met with caution. Banks pull borrower scores from one or all three major reporting agencies in the U.S. to determine creditworthiness. Scores are calculated using software created by the Fair Isaac Corporation or FICO; hence a mortgage credit score is often referred to in the industry as an FICO. A borrower's FICO can be tabulated from the first time installment loan or charge card payments are recorded. Most consumers accumulate debt with little regard to how faithfully or unfaithfully making payments affects consumer reports. But, the FICO score is an accurate reflection of payment histories, outstanding account balances, types of credit used, and any new accounts recently opened.

Payment histories include negative and positive reports detailing timely installments, delinquent accounts, past due payments, revolving charge accounts, and loans or accounts that have zero balances. Reports also indicate the length of time accounts were opened and time between payments or purchases. A mortgage credit score also reflects the total number of consumer accounts, such as charge cards, installment payments, and monthly expenditures, such as rent or house payments. Scores can take into consideration the number of accounts recently opened, lender inquiries, and whether consumers with poor payment histories have attempted to reestablish creditworthiness by obtaining secured charge accounts or paying off delinquent bills. While we worry about creditworthiness, many of us never consider that one day we must all be judged before God and bear the consequences of our actions. "For we must all appear before the judgment seat of Christ, that every one may receive of the things done in his body, according to that he hath done, whether it be good or bad" (2 Cor. 5:10).

Before buyers walk into a bank or lending institution to apply for a home loan, it is highly advisable to pull credit reports from each reporting agency to get an accurate score and assess potential problems which might send a red flag to lenders. Consumers might need to do some financial housecleaning before approaching lenders. Small delinquent accounts under $100 should be paid off immediately. Payment arrangements can be made with the Internal Revenue Service to settle back taxes. Borrowers should contact creditors who have reported past due accounts to pay off or reduce debts. Cleaning up a report may take several weeks or months, but it's a smart move for borrowers who want to boost a mortgage credit score before sitting down with the banker. Consumer counseling agencies will also work with borrowers to reestablish creditworthiness.

Consumers with past bankruptcies still on record will not have a good mortgage credit score. However, borrowers with bankruptcies nearing the seven- to ten-year mark may stand a good chance of getting an affordable loan. If bankruptcies and low scores prevent borrowers from obtaining financing from prime lenders, other options exist for home ownership. Currently, it is a buyer's market with a huge inventory of unsold homes, some newly constructed. Borrowers who lose the bid for prime financing may consider owner-financed homes with lower monthly payments. Desperate sellers feeling a backlash of adjustable rate mortgage woes may gladly offer creative financing options to get out of high-interest home loans. Borrowers should watch local classified ads or browse online real estate pages to catch bargains and rock-bottom sales prices on homes offered at below market value.

In spite of a less than perfect mortgage credit score, lenders will take into consideration a borrower's income, overall indebtedness, employment history, and assets, such as savings accounts, stocks and bonds, or cash on hand. Home buyers with a low FCIO, but a large cash down payment may still qualify for a low-interest mortgage. That's because money talks, and bankers buy into borrowers with a cash percentage of the asking price. However, buyers with a high mortgage credit score merit lower interest rates and better terms than those with past poor credit histories, regardless of a big bank account. Potential buyers with mediocre to medium creditworthiness may yet qualify for home loans through sub-prime and hard money lenders. Borrowers in this category should be prepared to pay high interest rates; but some sub-prime lenders will offer 100% financing. The Veterans Administration backs home loans for vets at 100%, but hard money lenders may require as much as one third of the sale price down before extending financing to high-risk borrowers. Consumers should bear in mind that high interest can send mortgage payments through the roof, so any effort to reduce monthly notes should be exerted. Large down payments, a second mortgage to offset other expenses and add extra money back into the budget, and settling for a lesser house with a lower mortgage are all options that will save money in the long run.

Finally, home buyers should begin building a good credit history from the first installment account and consistently make payments for a good mortgage credit score. Every revolving charge account, utility bill, and monthly payment should be regarded as another opportunity to add positive entries into personal consumer reports. No, big brother is not watching what consumers spend or how bills are paid, but creditworthiness builds credibility and affords opportunities to acquire goods and realize dreams. Big brother may not be watching, but the three major reporting agencies are keeping a close watch on consumer spending habits. Evidence of a good payment history is just like money in the bank when it comes to obtaining low-interest financing for a new home.

Add to: File Insurance Business article Teen Photo Images