Credit Scores Are Playing An Even Larger Roll In The Mortgage Process

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

Ever since the creation of Credit Scores they have played an important roll in obtaining a mortgage.  However, since 2009 Credit Scores Are Playing An Even Larger Roll In The Mortgage Process, especially with Conventional Mortgages, because the emphasis that Fannie Mae and Freddie Mac have placed on them.

Conventional Lending Guidelines have gone through major changes since 2009.  One of the more significant changes that has taken place during that time is the impact that Credit Scores now have not only on qualifying for a Conventional Mortgage, but also on the cost of obtaining it.

These days Credit Scores are playing a major part on how much money a Borrower will have to come up with at Closing.  If the middle Credit Score is under 740, or the downpayment is less than 25%, the Borrower will have to pay points.  For example, if a Borrower puts down 25% and their middle Credit Score is 740 or higher they do not pay any points, but if a borrower has a 640 middle Credit Score they will be charged with 2.875 points, that is a $2,875 additional cost for every $100,000 borrowed.  This is not being imposed by Lenders, and the money from the points does not go to the Lender.  This is being imposed by Fannie Mae, and the money from the points goes to Fannie Mae. So not having a middle Credit Score of 740 or higher can prove to be very costly to a Borrower.

That is why it is important for anyone looking to purchase a house in the near future to contact a Loan Officer to see what their Credit Scores are.  I know that there are a million companies offering free credit reports that you can pull yourself, but these are consumer reports, not mortgage reports, and they do not tell you how you can correct things that you may find on your Credit Report, or how to improve your Credit Scores.  By having a Loan Officer check your credit, you will eliminate surprises when you are ready to purchase a house, and if your Credit Scores are not high enough, the Loan Officer can tell you what needs to be done to bring them up to where they need to be.

There are three major things that have the biggest impact on your credit.  They are Credit History, Years of Credit, and Available Credit.  The first two relate to time, and will take time for them to correct or improve a Credit Score.  The third, Available Credit has a much quicker impact on the upward or downward movement of a Credit Score.

  • Credit History:  Which represents 35% of a Credit Score, and it is the history of how well you have paid your bills during the time you have had credit.  However, late payments, charge off's, or collections that are over two years have very little impact on a credit score.  In fact it is better to not pay off a collection that is over two years old, because that could actually bring down the score.  That is because it will bring the last reporting date current again, and will now be reported as a late.
  • Years of Credit:  Also know as length of credit.  This simply is the number of years that you have had credit, the longer the number of years with good credit the higher the score.  This represents 12% of a Credit Score.
  • Available Credit:   Available Credit is just what it says, it is the amount of credit that is available to you.  For example the number of credit cards you have, and how much of the credit limit on the cards are still available.  If you are over 30% of the available credit on a credit card it has a negative impact on your credit.  If you are over the Credit Limit it has an even bigger negative impact on your credit.  So a quick way to improve your credit is pay down your credit cards to less than 30% of the Credit Limit.  This has a huge quick improvement on your scores, and it represents 30% of your Score.

By contacting a Loan Officer an reviewing your Credit Report with him/her you will not only be able to see where you stand, but also receive the necessary help if your Credit is in need of improvement.  Also closing out unused credit cards does not help your credit.  You are better off keeping them open, because it adds to the amount of available credit you have.

So as you can see Credit Scores Are Playing An Even Larger Roll In The Mortgage Process. Maintaining high Credit Scores can be the difference between a Borrower having enough money to purchase a home or not.  But even if money was not an issue for a Borrower, I for one would rather keep my money by having high Credit Scores than to give it to Fannie Mae.

 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Sajy Mathew 12/01/2012 01:35 AM
  2. Ritu Desai 12/01/2012 10:00 PM
  3. Michael J. Perry 12/02/2012 09:48 AM
  4. Alicia Utz 12/02/2012 09:52 AM
  5. Jeffrey Jones 12/02/2012 02:08 PM
  6. Praful Thakkar 12/02/2012 02:49 PM
  7. Jennifer Fivelsdal 12/04/2012 02:00 PM
  8. Michelle Carr Crowe,Altas Just Call...408-252-8900! 12/04/2012 02:55 PM
Topic:
Lending / Financial
Location:
Connecticut
Groups:
Realtors®
Mortgages
1st Time Buyers
Real Estate Rookie
Tags:
credit scores

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Rainmaker
1,075,400
Gary Frimann, CRS, GRI
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker

Although the credit score is important, and I agree with all you said, I think lenders should look more at high down payments favorably than just the credit score, as I'm sure they do.  We as a society should perhaps de-leverage just a bit perhaps.

Dec 01, 2012 03:55 AM #19
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gary, that is not up to the Lenders,  they could possibly considered that as a compensating factor, but unfortunately there is no flexibility in the GSE's guidelines, and Investors have tacked on even more guidelines.

Dec 01, 2012 04:30 AM #20
Rainmaker
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Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, there is always something changing in lending, and not always for the good!   With credit scores being the prime focus, maybe the public will eventually figure out this is important!

Dec 01, 2012 04:56 AM #21
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joan Credit Scores have always played a large role in qualifying for a mortgage, but now they are also impacting the affordability of purchasing which makes it a double whammy.

Dec 01, 2012 09:24 AM #22
Rainmaker
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Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

George,  How true this!! keep up the good work and good luck with your business in 2013,  E

Dec 01, 2012 08:22 PM #23
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Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

Goerge, thanks for an informative post.  Borrowers who ignore your advice may get unwelcome surprises.

Dec 01, 2012 09:22 PM #24
Rainer
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Elva C. Benjamin
RE/MAX of Gettysburg - Gettysburg, PA
REALTOR, ABR, CDPE, SRES

Excellent post.  Very well organized.  Thank you.  It will help me convince some of my buyers to work on their credit instead of settling for a lesser home and more aggravation. 

Dec 01, 2012 10:01 PM #25
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George there is much in your post for potential buyers to ponder.  Speaking with a mortgage professional ahead of time could save buyers money because they will know what negative information should be addressed to get a better credit score.

Dec 01, 2012 10:10 PM #26
Rainmaker
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Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

I guess credit scores are the great objective "equalizers", kind of like the SAT scores in college admissions. Thank you for breaking down the details of what goes into compiling a score.

Dec 02, 2012 12:04 AM #27
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

George, yes, times have changed - for better, I should say.

I never used to be worried about the buyers getting mortgage in those days - whereas now I double check with my lender if they are really really pre-approved and not just pre-qualified..

Dec 02, 2012 01:26 AM #28
Rainer
278,109
Jon Karlen
Finish Line Realty - Shelbyville & Louisville Ky Real Estate - Shelbyville, KY
Louisville & Shelbyville Kentucky real estate

Great advice and explanation of the importance of a good credit score when trying to qualify for a mortgage today.

Dec 02, 2012 04:37 AM #29
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ed and Tracy thank you

Brain yes they may, and those are not the type of surprises that people like.

Elva, hope the information accomplishes that for you

Jennifer that is very true, and hopefully they will listen

Olga I never thought of looking at it that way, but you are right it is a lot like an SAT score :)

Praful that is a very good practice to follow

Jon, it can prove to be very expensive if the Credit Scores are not where they should be

Dec 02, 2012 06:52 AM #30
Rainmaker
1,827,067
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

This is a definite REBLOG to share with my Social Media readership ! Great job of making the value of a HIGH credit score clear !

Dec 02, 2012 09:45 AM #31
Rainmaker
102,978
Alicia Utz
EXIT Realty Associates - Lorton, VA
REALTOR & Military Relocation Professional in NOVA

George, Thanks for bringing attention to this very important topic.  Many consumers are confused due to teh lack of information available and the requirements of three different reporting agencies.

Dec 02, 2012 09:51 AM #32
Rainmaker
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Ginger Harper
Coldwell Banker Sea Coast Advantage - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

Yes.. I learned this in a class on Wednesday..

 

Dec 02, 2012 10:55 AM #33
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - Lack of FICO score and/or lack of down payment can make it very expensive to get a mortgage.

Dec 02, 2012 02:04 PM #34
Rainmaker
216,493
Christine McDaniel
Coldwell Banker Residential Brokerage Porter Co. - Crown Point, IN
Broker Associate

Great information George!  So helpful for those of us who do not quite understand the mortgage process.

Dec 02, 2012 02:25 PM #35
Rainmaker
1,059,537
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

George, I'm going to save this post for buyers.  Most people do not understand that they cannot buy a house for any amount "they think" they can afford.  In addition, few have checked their credit scores.

Dec 02, 2012 03:42 PM #36
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Michelle Carr Crowe,Altas Just Call...408-252-8900!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Thanks for this crucial information. Buyers may be surprised to learn if a borrower has a 640 middle Credit Score they will be charged with 2.875 points, that is a $2,875 additional cost for every $100,000 borrowed. And the money doesn't even go to their lender.

Dec 04, 2012 02:51 PM #37
Rainer
181,841
Tatyana Makarov
Coldwell Banker Residential Brokerage - South Windsor, CT
Your Greater Hartford Area Realtor

Great post, George,

very important information every buyer should know. Thank you for sharing with us.

 

Dec 04, 2012 10:02 PM #38
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