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Poor credit? A few options

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Last week we looked at other factors that may come into play when your credit, as a first-time buyer, is poor. What are some options to finding a lender?

  • FHA Loans: The federal Housing Administration on requires a credit score of 580 and a down payment of 3.5 percent. Many lenders won’t go below a credit score of 620, so you may have to look around.
  • VA Loans: Military personnel (current or former) can benefit from very low – or no – down payment or mortgage insurance.
  • Credit Karma: Credit Karma can help with crucial credit decisions so that you can improve your credit score before you apply for a mortgage.
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Poor credit? Other factors to consider

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If you are a first-time homebuyer with less than stellar credit – relax (at least a little bit). Fortunately for you, it is common for first-time buyers to have credit issues so there are some options available.

  • Down payment: Paying a high down payment certainly increases your chances at getting a good mortage.
  • Employment history: A strong and long history of employment and a high income to loan value ration will work in your favor.
  • Monthly rent: If your mortgage payments will be similar to what you are currently paying in rent, this shows you can meet the monthly payments.
  • Savings account: A good savings account is always a plus.

Next time we’ll look at specific options at finding a lender when your credit is poor.

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Interest rates remain low

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The good news is that the Federal Reserve is keeping its benchmark interest rate close to zero. While it’s not directly linked to mortgage rates, it does bear a strong influence.A

The not-so-good news is that lending standards have gotten stricter as banks are concerned about the long-range economy.

Analysts say that consumers with a credit score above 700 will most likely get the best rates while those with lower scores may have difficulty securing a loan.

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New FICO Resilience Index should help with credit

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Fair Isaac Corp, the company that created FICO, has established a new credit index that should help more homebuyers qualify for a home loan. The index uses financial information before and after the Great Recession to determine “financial resilience” during times of economic volatility.

The idea is to go beyond the traditional FICO score, which evaluates a borrower’s ability to meet payment obligations based on previous history, with an emphasis on lower account balances and credit use.

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Talkin’ Millennials … Again

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Millennials may not be everybody’s favorite topic – unless you’re a millennial, of course – but a new study by the credit report agency Experian has some interesting data. First of all, while 86 percent of millennials see owning a home as a sound financial investment, only 15 percent actually do so.

Part of the reason is low credit scores. While the average credit rating in the Unites States is 677, millennials between 22 and 28 have an average of 652 and older millennials age 29 to 35 have an average score of 665.

Millennial home buyers average 31 years of age with an income of $64,000 and are more prevalent in the South and West, according to the Experian study.

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Improve Your Credit Score Before Buying

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These days would-be homebuyers – particularly first-time buyers – need all the help they can get in today’s market. Trulia offers five suggestions for improving your credit before applying for a mortgage:

    >Pay your bills – ON TIME: There is no surer way to harm your credit than to be consistently late on paying your bills. Make this a priority!
  • Check your credit score: How can you improve your credit score if you don’t know what it is. Go to Annual Credit Report to find out.
  • Become an authorized user: Make sure the primary cardholder reports you to the credit bureaus as an authorized user and has good credit.
  • Get a secured credit card: An excellent way to build a credit score and to learn how to use a credit card. Make sure the issuer reports to the credit bureaus. You won’t use this forever but it’s a good way to begin.
  • Start with a credit-builder loan: Start building a credit history. Make your payments, improve your score.
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Less Than Perfect Credit?

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Buying a home usually involves securing a mortgage and, not unreasonably, lenders prefer borrowers who have demonstrated they can pay off debt. And how do they demonstrate that? Why through credit scores which show how they’ve handled financial obligations, such as credit cards, car loans, and student loans, in the past.

According to a recent article in Realtor.com, a credit score of 740 or above should entitle the would-be borrower to a good interest rate and possibly more attractive mortgage terms. A score below 700 could label the borrower as a potential risk.

Since nearly 25% of Americans report errors in their credit scores, it’s definitely worth checking. If there is a history with only one late payment, you may get it removed. If there is a longer history, it’s time to start re-building that score.

Finally, a larger down payment can improve the chances of acceptance of a mortgage application, although normally at a higher rate of interest.

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Are You a “Transactor” or a “Revolver”?

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Confused? We don’t blame you.

These are terms related to your credit which are about to become quite important to would-be home buyers – and lone-seekers – in the coming year. A “transactor” pays off credit cards in full every month or exceeds the minimum required payment. A “revolver” consistently makes the minimum payment every month, thus always rolling over balances.

Why is this important? Up to now, credit reports only showed whether an applicant was late on card payments or defaulted on a car loan. Now, however, the reports will show how applicants managed their credit over the previous two years.

Obviously a “transactor” will be considered a better risk and this new information will be used to help determine whether an applicant qualifies for the loan they are seeking.

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Student Debt Slowing New Home Buyers

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A new survey by the National Association of Realtors and SALT, an American Student Assistance program, indicates that sizeable student debt is delaying many would-be first-time home-buyers from entering the market for up to five years. Moreover, 40 percent said that student debt is preventing them from moving in to their own place after graduation.

Older millennials – 26 to 35 – and those with debts between $70,000 and $100,000, faced the most severe impact.

69 percent believe they are not financially secure enough to buy a home while a full 63 said they didn’t think they could qualify for a mortgage.

Of those surveyed most owed between $20,000 and $30,000 although 38 percent claimed their debt was $50,000 or higher.

Students’ home purchases are being delayed by up to five years as they struggle to repay loans taken out to fund their education, according to a new survey carried out by the National Association of Realtors and SALT, an American Student Assistance program.

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HOA Payments and Credit Scores

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Equifax, one of the three major credit-reporting agencies, will begin receiving HOA payment informationand account status as early as October, which will then be used in credit score analysis. The Community Association Institute estimates that there are 333,000 community associations nationwide which collect some $70 billion per year.

By collecting information on HOA payments, the national credit-reporting agencies will raise these payments to the same level of importance as auto loans, credit card payments, and, of course, home loans.

The agencies believe this will “provide additional insight” into a consumer’s financial behavior.

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