House Hunting and Credit: What You Need to Know
Courtesy of Brandpoint
By now it is something of a cliché to call homeownership the American dream. But even if sitting on your own deck, looking over a picket fence, and sipping lemonade doesn't move you, homeownership is still one of the best ways to build wealth.
For many people, owning a home is cheaper than renting and in the long run the biggest investment they will ever make. It is also a practical financial move thanks to the fact that you're likely building equity.
So, although it is perfectly fine to dream about backyard barbecues and the smell of fresh-cut grass, the path to owning your own home should also involve taking the time to do some financial sightseeing.
As a leader in creating credit scoring models, VantageScore Solutions has made it a priority to educate consumers on the important role a good credit history plays in buying a home.
Whether you're about to buy your first home or getting ready to sell and buy another one, here are the basics of how credit impacts the home-buying process.
If you are like most people, you will probably need to take out a loan. If you are able to pay cash for your home instead, count yourself among the lucky few!
A huge part of taking out a loan involves your credit history and credit score. Basically, you must prove to lenders that you can be a responsible borrower and can be trusted with a mortgage of thousands of dollars. A strong credit score can provide proof of this trustworthiness.
Different types of loans have different credit requirements. Some loans require you to have a credit score of at least 620, although it is possible (with some difficulty) to be approved for a loan with a credit score as low as 580. But getting loan approval is only part of the story.
Better Credit, Better Rate
Home loans come in all shapes and sizes. Some are fixed-interest mortgages, some have adjustable rates or longer terms, and the list of variables goes on. Just like anything else, some loans are better for you than others. To get the loan that has the lowest interest rate, which right now is around 4 percent, usually requires a higher credit score. Rates can be considerably higher when you have a lower credit score, and the result is paying significantly more monthly over the life of the loan.
The reason is that a higher credit score demonstrates that you are skilled at managing debt and have a history of responsibly paying back many types of loans. Therefore, the lender is taking on less risk when lending you money. The less risk for them, the better the interest rate for you.
While there are, of course, more nuances to the process, your credit score plays an instrumental role in determining the type of loan you may qualify for. Therefore, before you go to your first open house, check your credit score to better understand the factors that typically impact your score. Many websites provide free access to your VantageScore, which is a perfectly fine barometer to use to directionally gauge your creditworthiness. Mortgage lenders use FICO scores in their underwriting.
Knowing your credit history and understanding the factors that could impact your credit score will help you plan, budget, and come up with a realistic wish list for your house.
For more ways to stay on top of your credit score go to your.vantagescore.com.
Courtesy of http://www.anypresentations.com/
The Latest Mortgage News
Photo: © Catherine Yeulet - iStockphoto
The average rate for a conventional 30-year fixed rate mortgage (FRM) reached a record low, according to Freddie Mac's Primary Mortgage Market Survey. For the first time in history, the 30-year FRM dropped below four percent, averaging 3.94 percent for the week ending October 6, 2011. That's a 0.33 percent difference from last year's average of 4.27 for the same week in October. The 15-year fixed-rate mortgage—one of the most popular options for refinancing—fell to 3.26 percent, the lowest level on record.
Higher Interest Rates for Jumbo Loans
Homeowners looking to buy or refinance in the country's most expensive real estate markets will need every break on mortgage rates they can find. Fannie Mae and Freddie Mac recently dropped the jumbo loan mortgage limit from $729,750 to $625,500. This change will lead to slightly higher interest rates for jumbo loans; fortunately, historically low interest rates for 30-year FRMs will help offset the increase.
Changes to the Federal Housing Administration program might also have an effect on some of these buyers. The same ceiling drop to $625,500 also applies to FHA-insured mortgages in many counties. Jumbo-loan borrowers who previously qualified for special lower down payments with the FHA program may no longer qualify, a situation that could price some buyers out of the market. A year ago, a jumbo-loan borrower could buy a home in a high-cost market with as little as 3.5 percent down; today, they might need a down payment as high as 20 to 30 percent, and they'll need an excellent credit rating.
Reap the Benefits of Low Mortgage Rates
What can home buyers take away from this latest news from Fannie Mae, Freddie Mac, and the Federal Housing Administration? Anyone looking to buy or refinance a home in the next few years can rest assured that they are receiving one of the best mortgage rates on record. Buyers need to prepare for their first home purchase by saving for a down payment and repairing their credit score, since the best interest rates require an excellent credit score.