Coldwell Banker Headin’ Home Realty's blog featured information about the FICO Score 9, which is already being used by some banks. We all know how important a FICO score is, so here's why the FICO Score 9 might drastically change the outcome for home buyers.
How Low FICO Scores Can Prevent Home Ownership
A person's FICO score can make it so that interest rates offered are so high that the home buyer's debt-to-income ratio end up excluding home ownership as a possibility. Forbes explains:
"Take two next door neighbors with nearly identical houses looking to refinance almost the same $300,000, 30-year fixed rate mortgage, except for one significant difference; one neighbor has a 750 credit score, the other clocks in at 620. The 750 neighbor gets the shiny advertised 4.25% rate and a $1,476/month mortgage payment. Neighbor 620 on the other hand gets a 4.75% interest rate and pays $1,565/month! An interest rate that is a half percent higher and mortgage payments that are $89/month, more simply because of the riskier credit score."
Now, what if that $89 was just enough to push the resultant debt-to-income level of the home buyer into the ixnay-on-the-oanlay category? Never mind that Neighbor 620 has been paying $1,800 a month in rent on time for several years.
A low FICO score can also eliminate the possibility of many different types of loans. Most VA lenders, for example, require a credit score of at least 620. Some people requiring help with down payments to get into homes often find these programs out of reach because of the low credit score. They paid their rent on time for years, but let their credit card payment slip frequently to ensure prompt rent payments to their landlord. They didn't even think about how the credit card, not the rental payment, would be taken into consideration when issuing a FICO score.
Changes Ushered In With The FICO Score 9
More banks have begin switching over to the newer FICO Score 9 version. This can sincerely make an enormous difference for the home buyer's chances of getting into an affordable loan. How? Well, the FICO Score 9 makes it so that if your landlord reports your rental payments, your timely payments will finally boost your score!
Not just that though. If medical bills have previously brought down a person's credit score, the FICO Score 9 should bring some relief. It puts less emphasis on medical bills.
Also, if you have paid off a collections account in full, it will no longer negatively affect your credit. No more waiting years for one bad collections account to fall off your credit history. The FICO score the bank uses is the most important thing. With a collections account out of the equation, some people's credit scores will skyrocket!
And that's life changing.
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