Mortgage credit score
Mortgage loans are one of most popular loans available and these loans are taken by millions of people across the globe each year for buying home, making renovation or improvement, buying land, buying commercial properties, cashing out equity etc. There are some eligibility requirements attached with these loans which must be fulfilled. Terms and conditions as well as interest rates associated with mortgage loans depend on many factors. Credit score is one of most important factors that affect mortgage loans in a great manner. Most of lending institutions in United States use credit score provided by credit bureaus like Trans Union, Equifax etc for determining the eligibility and interest rates. In fact, credit score has direct impact on mortgage loans.
If a person has excellent credit score, mortgage lenders would like to extend loans at most favorable terms. Similarly, if a person has bad credit, either mortgage lenders would deny the mortgage loan altogether or would apply high interest rates. Let us try to understand this with an example. A person with credit scores 760-850 can get a mortgage loan at 5.78% while for a person with credit scores ranging from 620-659, mortgage rates applicable are 7.09%. A person having credit score between 500 and 579 can have to pay 9.494% on mortgage loans.
It has been observed that many lenders in United States use FICO scores for determining rates and for assessing the risk attached with mortgage lending. FICO scores are the scores offered by Fair Isaac Corporation. If a person has FICO score more than 620, it is said that he has average to good credit score and lenders may provide him the required loan. However, if the FICO score is lower than 620, a person is qualified under sub prime borrower and he may be required to approach a sub prime lender for fulfilling requirements. Credit scores from 620-650 are considered as good by mortgage lenders but element of risk is still attached with lending to such people.
Credit scores more than 720 are considered as excellent and people having excellent FICO scores are offered with best mortgage loans in terms of rate, repayment period, closing costs etc. Though credit score may determine the availability of mortgage loan, final decision always rests with lender. If it is satisfied that borrower has the capability of repaying the mortgage loan, it may offer loan to a person who has credit score less than 620. Even people with credit scores as low as 500 have been able to get mortgage loans from different types of lending institutions. FICO scores vary from 300-900 and depend upon numbers of factors. Some of these are the length of the credit history, numbers of credit cards that have been issued to a person, late and missed payments, employment history, underpayments, derogatory or negative information etc.
There are some lending institutions and mortgage financing institutions that specialize in offering mortgage loans to people having bad credit, i.e. credit score lower than 620. Such lenders are called as sub prime lenders. While providing mortgage loans, these lenders may ask for documents like salary stubs, bank statements, income tax returns for past three years etc. No doubt, interest rate applied would be higher than standard mortgage rates, but there is no other alternative left with the borrower. In context of bad credit, it should be mentioned here that Fannie Mae provides mortgage loans to people with bad credit through Expanded Approval Mortgage program. Similarly, Freddie Mae provides A-minus mortgage loans to people having low FICO scores.
Many experts feel that a person should check his credit score before approaching any mortgage lender. This is because mortgage scores can be lower due to errors or frauds etc contained in the credit reports. These tend to contain errors quite frequently and if found, these can easily be removed for pulling the credit scores up. For checking errors, a person can approach a copy of credit report from all the major credit bureaus. In fact, under new federal laws, one copy of credit report can be obtained free of cost in a year from credit bureaus. If credit report contains a delinquent bill payment history, same can be improved before approaching a mortgage lender. A person must request for credit report as well as credit score from credit bureaus. There are some lenders that offer risk factor statement at the request of borrowers. This statement contains details of all the potential risks attached with lending to such people.
Not all the lenders or financial institutions make use of FICO scores for determining the eligibility and terms attached with mortgage loans. Some of them use scores offered by other agencies like Scorex. Similarly, some lending institutions use FICO scales that can be customized for assessing the risk attached with a particular borrower.
A person should search for mortgage lenders extensively for getting best terms. In case of low or bad credit scores, this becomes inevitable for getting low rates.
Mortgage application denial, mortgage points are some of behavioral patterns of lenders with borrowers having bad credit. Many people in United States have been forced to pay thousands of dollars extra towards closing costs and higher rates because of bad credit rating. Thus, it is very important that a person has good credit score. There are some steps that can be taken for improving the credit score and for getting mortgage loans at favorable terms and conditions. First of all, a person must try to pay all the credit card bills in time every month. Credit card outstanding has been one of greatest factors in lowering of credit scores in United States and more than 70% of households are suffering from such outstanding. Similarly, a person should not open and close credit card accounts very frequently.
This also lowers the credit score. In general, 2-3 credit card accounts be maintained and payment made in time. This would help a person in increasing credit limit in times of requirement. A person should never use credit card to the maximum limit provided. If there are some other loans due, these must be repaid. All the efforts mentioned above would help a person in having higher credit scores and in getting mortgage loans with lower rates. Remember, improvement in the credit score requires time and thus, a person should be patient for same. Unless there are errors contained in the credit report, there is no way of increasing scores miraculously.
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