Wednesday, January 16, 2013 - Article by: MICHELLE DEMA - Embassy Funding LLC NMLS 854225 -
Many prospective home buyers are wondering if they can qualify to buy a home. The problem is there is a lot of information out there that can be misleading. One of the most important factors as to whether or not you can qualify for a mortgage is your credit score.
From our experience we find that most borrowers don't know what their credit scores are or that there are three credit reporting bureaus or agencies, Transunion/Fico, Experian/Fair Isaac and Equifax/Facta Beacon. Each one of these privately owned companies will generate an actual credit score based on many different factors reported to them by your creditors. a far from perfect system, I might add.
Lenders will use the middle score as your qualifying credit score. What that means is you need all three scores to know which the lender will be using to let you know what you qualify for. From our experience when a client tells us their score is, lets say 685 it is usually based off one agency and not their actual middle score. It is for this reason that it is best to choose one lender to work with, and have them pull your credit and go over it with them so their are no surprises after you start the process.
Lenders will qualify you based on risk. There are many factors that contribute to the risk but credit score is first. lenders will have a tier system which usually has increments of 20 points. So for argument sake it would start at 620 and every 20 points up you would be considered less off a risk, so the next tier would be 640 or better and so on. Conventional loans and Government loans weigh this factor a bit differently with better scores being more important on the conventional loans. This tier system will determine what your so called base rate will be. Since as I stated they lend on risk, the higher the credit score the better your base rate will be.
As of today there are lenders that will do an FHA loan with credit scores down to 560 middle scores. I can tell you that it is very difficult to get these loans approved as there are more guidelines added since the risk is considered much higher. Any FHA loan with a credit score under a 580 also requires a minimum of 10% down opposed to the normal 3.5% down. For a rate and term refinance up to 97.75% loan to value you will need a minimum middle score of a 580
On Conventional loans you will need a minimum of a 620 middle score to qualify for up to 97% financing to buy a home. You can do a rate and term refinance with a 620 middle score up to 95% loan to value.
Remember your credit score will directly affect what your interest rate will be, with higher scores getting you better rates. That being said there are other factors that are weighed heavily in the mortgage approval process besides credit score but it is a critical one.
if you'd like to know what you qualify for whether it's a purchase or refinance feel free to contact Team Best Mortgage Option for a free no obligation analysis of your situation. Call or email and ask for Benny or Michelle 201-962-3555 Team@BestMortgageOption.com
We can also help you fix or build your credit !
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