What Every REALTOR® Wants You to Know About Credit Scores
Unless you are paying cash for a house, you will need to have a loan or mortgage, to buy the house. Having a good credit rating will make that task a lot easier.
First, let me start by saying that I am not a mortgage broker, however, many of the questions I get from real estate clients involve mortgages. If you are working with a REALTOR® they should be able to refer you to a mortgage person who can answer any questions and to get the ball rolling for an approval.
Nevertheless, there are many things we can talk about to help buyers, especially first time home buyers with questions they may have. It is important to understand that the news indicates that you must have 20% down to buy a house – not true. FHA requires as little as 3.5% and the USDA has programs in specific areas that will require 0% down! There are far too many programs to discuss here. That is where a mortgage officer can help, but there is some basic information that can help a home buyer understand the approval process.
Recently I talked to a potential client who was aggressively paying down his credit card debt, which is not a bad thing. However, the client was under the impression that he had to have all his credit cards paid off before he could apply for a mortgage – again, not true. It is important to pay down debt to a level that helps your credit score, but it is also important to have cash on hand when buying a house. That is where a mortgage person can help.
Here is some basic information to help you understand how your FICA score is computed. Probably the most important factor is your payment history. Your payment history is the best predictor of future behavior and therefore one of the most important factors in a credit score. Your payment history accounts for 35% of your credit score.
Another important factor is the amount you owe, and it’s not just how much you owe, but how much you owe compared to the amount of credit you have available. If a person is maxed out on their available line of credit they are more likely to be over extended and miss future payments. This accounts for 30% of your credit score.
These two factors account for 65% of your credit score. New credit and length of credit also count for your credit scores. Talking to a mortgage officer can help you to determine where you stand and what you need to do to improve your score to enable you to buy a house.
If you are thinking of buying or selling talk to a real estate professional – talk to a REALTOR® – who can give you the information you need to make an informed decision.
As always, if I can help with any of your real estate needs, please feel free to text or call me at 301-712-8808 or email me at RolandLow1@gmail.com.