FICO Scores - Mortgage Information and Advice

"Improve your FICO Score to get the lowest mortgage loan rates."

FICO Scores and Mortgage Underwriting Decisions

FICO scores have a very strong effect on the mortgage rates you're quoted by home loan lenders. Improving your FICO score can greatly improve your interest rate and lower your mortgage payment.

A difference of ten points can mean paying an extra 0.25% on your mortgage which means an extra $250 a year on a $100,000 mortgage.

FICO scores come from Fair Isaac & Company, who originated the credit score concept. You can find out more at their consumer website.

Click here to visit the MyFICO website.
 

FICO Scores as Guidelines

FICO scores are only guidelines and factors other than FICO scores often affect underwriting decisions.

Some examples of compensating factors that will make an underwriter more lenient toward lower FICO scores can be a larger down payment, low debt-to-income ratios, an excellent history of saving money, and others.

There also may be a reasonable explanation for items on the credit history which negatively impact your credit score.

They Don't Always Make Sense

Even so, sometimes credit scores do not seem to make any sense at all. One borrower with a completely flawless credit history had a FICO score below 600. One borrower with a foreclosure on her credit report had a FICO above 780.

Portfolio & Sub-Prime Lenders

Finally, there are a few "portfolio" lenders who do not even look at credit scoring, at least on their portfolio loans. A portfolio lender is usually a savings & loan institution who originates some adjustable rate mortgages that they intend to keep in their own portfolio instead of selling them in the secondary mortgage market.

They may look at home loans differently. Some concentrate on the value of the home. Some may concentrate more on the savings history of the borrower.

There are also "sub-prime" lenders, or "B & C paper" lenders, who will provide a home loan, but at a higher interest rate and cost.

Running Credit Reports

One thing to remember when you are shopping for a home loan is that you should not let numerous mortgage lenders run credit reports on you. Wait until you have a reasonable expectation that they are the lender you are going to use to obtain your home loan.

Not only will you have to explain any credit inquiries in the last ninety days, but numerous inquiries will lower your FICO score by a small amount. This may not matter if your FICO is 780, but it would matter to you if it is 642.

Click here for your Free credit report w/free credit score.

Don't Buy A Car Just Before Looking for a Home!

In conclusion, a word of advice not directly related to FICO scores. When people begin to think about the possibility of buying a home, they often think about buying other big ticket items, such as cars.

Quite often when someone asks a lender to prequalify them for a home loan there is a brand new car payment on the credit report.

Often, they would have qualified in their anticipated price range except that the new car payment has raised their debt-to-income ratio, lowering their maximum purchase price.

Sometimes they have bought the car so recently that the new loan doesn’t even show up on the credit report yet, but with six to eight credit inquiries from car dealers and automobile finance companies it is kind of obvious.

Almost every time you sit down in a car dealership, it generates two inquiries into your credit.
 

Credit History is Important

Nowadays, credit scores are important if you want to get the best interest rate available. Protect your FICO score. Do not open new revolving accounts needlessly.

Do not fill out credit applications needlessly. Do not keep your credit cards nearly maxed out. Make sure you do use your credit occasionally. Always make sure every creditor has their payment in their office no later than 29 days past due.

And never ever be more than thirty days late on your mortgage.

Ever.

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copyright 1999 by Terry Light and RealEstate ABC

Related Pages

Credit History and Mortgage Approval - Your credit history affects your mortgage approval chances - Get a free credit report with credit score and qualify for a lower mortgage loan rate.

Credit Report Guide - Information and advice - Credit Report Guide - Resource links and tips about examining your credit report and FICO score for errors and omissions.

Credit Score Improvement - Credit scores myths and facts - How to improve your credit score - Get a free credit report with free credit score and improve your numbers.

FICO Score Explained - Information on your FICO score, an explanation of the factors your score is based upon, plus details on improving your FICO scores and home buying credit rating.

 

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