Tag Archives: credit scores

Why your credit score matters | Cross River Real Estate

Credit scores. It seems like we’re talking about them more than ever. Where to get them, how to track them, and the best ways to improve them.

But why is your credit score so important to so many lenders? What does it tell them about you and how does it help them make decisions about what kind of loan you may be approved for?

Or if you’ll receive one at all?

We’re here to demystify “creditworthiness” in the eyes of some lenders and break down different credit scores, so you can feel more prepared — and less confused, and perhaps a little less frustrated — when you apply for a loan.

Credit scores tell most lenders how likely you are to repay them

Think of your credit score as a financial report card. When lenders pull your credit report, one of the things they look at is your credit score — your “grades,” so to speak — and, based on how high or low your number is, they can estimate how much risk you present as a borrower.

Instead of As, Bs, Cs, and so on, your three-digit credit score is grouped into the following categories (also known as a credit score scale): poor, fair, good, very good, and excellent. While these categories differ slightly between the two main credit calculators (FICO® credit score and VantageScore®)1, they generally fall into the following ranges:

  • Poor – VantageScore: 300-600; FICO: 300-579
  • Fair – VantageScore: 601-660; FICO: 580-669
  • Good – VantageScore: 661-780; FICO: 670-739
  • Very Good – (FICO only): 740 to 799
  • Excellent – VantageScore: 781-850; FICO: 800-850

(Learn more about FICO vs. Vantage scores here.)

Where your credit score falls tells many lenders a lot about your financial history. And while it’s not the only factor that determines whether or not you’ll get a loan — and the loan terms you’ll receive — it can be an important one.

What credit report information do most lenders use to make their decisions?

When lenders pull your credit report from the 3 credit bureaus — Equifax®, Experian® and TransUnion® — they’ll be able to see much more than where you fall on the credit score scale.

Here’s some of what they’ll review:

  • If you pay your bills on time.
    Lenders want to know you pay your bills on time. They also want to know if you have any accounts in collection or if you’ve declared bankruptcy. There’s a reason payment history is a whopping 35% of your FICO score.2 The more responsible you are with the bills you already have, the more likely you are to be responsible with a new one.
  • How much credit you’re using. (Also known as credit utilization ratio.)
    Lenders also like to see that you haven’t used up all of your available credit so you have the least amount of debt possible. For example, if you have $5,000 worth of credit on your credit cards, it looks bad to lenders if you’re already using $4,000 of it. A good rule of thumb is to keep your credit utilization at 30% or less.3
  • Your debt-to-income ratio.
    Also known as your DTI, your debt-to-income ratio tells lenders you have enough income to pay your debts. This is why lenders request your income along with mortgage or rent, car payments, and other monthly bills. They want to see that even after paying all your bills, you’ll still have enough money to pay them as well. (The lower your DTI the better. You can calculate your own DTI here.)
  • How long you’ve had your accounts.
    That credit card you’ve had for years and years can be a good thing, especially if you’ve had a great payment history. The length of time you’ve had an account in good standing—as well as the diversity of your accounts (auto loan, mortgage, etc.) — looks good to lenders because it demonstrates that you have a history of responsible borrowing with different creditors.

The bottom line? Lenders want to be confident you’ll pay them back.

The financial industry’s credit model can sometimes feel like a harsh way of deciding who’s worthy enough for a loan, especially if your credit score could use improvement. It’s important to remember that lenders simply want to rest assured that you’ll pay them back, and your credit score, as well as your credit report, helps them do that.

It’s also important to remember there are lenders that look at more than your credit score. You just have to take time to find one that will review your individual situation to help you find the right solution.

Look your best to lenders by keeping an eye on your credit.

No matter what type of credit score you have, it’s important to keep track of your credit report so you can not only be approved for loans, but get the very best rates for repayment. As mandated by the federal government, every U.S. citizen is entitled to one free credit report from each of the 3 credit bureaus each year.4 It’s a great way to prevent unwelcome surprises and work your way to excellent credit.


Sources:
1. https://www.creditkarma.com/advice/i/credit-score-ranges/
2. https://creditcards.usnews.com/articles/what-is-considered-a-good-credit-score
3. https://www.thebalance.com/what-is-a-good-credit-utilization-ratio-960548
4. https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-credit-reporting-act

Got Lousy Credit? 10 Places Where It Won’t Stop You From Buying a Home | Armonk Real Estate

credit-score-door
Getty Images; realtor.com

Bad credit? No credit? No problem—or so, many of those all-too-catchy loan ads promise.

But while you might be able to finance a used car with less-than-stellar credit, getting approved for a home mortgage when you have FICO scores dwelling deep in the cellar can seem like an infinitely steeper climb. An Everest-level climb, in fact.

But here’s the shocker: It can be done, particularly if buyers know where to score a mortgage. That’s where realtor.com®’s penny-wise (but never pound-foolish) data team comes in. As it turns out, there are plenty of cities where a not-great credit score—say, well under 650—won’t stand between buyers and their dream home. And yet, in other parts of the country, buyers are delusional if they think they’re getting a mortgage without a nearly perfect score—and boatloads of cash for a down payment. We located the top metros for both.

So how do you snag a home mortgage without an excellent credit rating? It’s largely a matter of what government loan programs are available in a specific area—and those vary substantially. The U.S. Department of Agriculture, for example, sometimes offers no-money-down loans to borrowers whose scores are below 640—but only for homes in a rural ZIP code.

Federal Housing Administration loans, among the most popular government-backed mortgages, allow borrowers with credit scores as low as 500 to qualify with a 10% down payment. (They must have scores of 580 to snag loans that require only 3.5% down payments.) But plenty of sellers choose not to accept them if they have other offers.

On the exclusionary side of the equation, home prices and market hotness play leading roles in keeping credit rating requirements high. Maybe toohigh if you haven’t been tending to your credit like a weed-free garden.

“When you’ve got 25 offers on a house and you’re the seller, you’re more likely to take a cash buyer or a conventional loan with 20% down,” says Courtney James, owner of Urban Durham Realty in Durham, NC. (Conventional loans, not backed by a federal agency, generally require a credit score of at least 620; anything lower than 650 is considered “OK,” “poor,” or “bad” by rating agencies.)

To find out where credit-challenged buyers live out the American ideal of homeownership, we calculated the share of mortgages in the largest 200 metros* obtained with a 649 FICO score or lower. The share of mortgages was calculated over a 12-month period from July 2017 through June 2018. We limited rankings to one metro per state.

So let’s start with the feel-good news: places where would-be home buyers with poor or downright crummy credit scores can still dare to dream!

Cities where you can get a mortgage with poor credit
Cities where you can get a mortgage with poor creditTony Frenzel

1. Charleston, WV

Median home list price: $147,300
Share of borrowers with a 649 FICO score or lower: 39.1%

Charleston, WV
Charleston, WVbenedek/iStock

Although the state capital of West Virginia is a college town, the city’s overall population is aging. There’s been a big decline in chemical industry or coal jobs. That’s caused many folks to put their homes on their market.

This has opened the door for first-time buyers seeking move-in ready, three-bedroom homes near downtown, says local real estate agent Margo Teeter of Old Colony Realtors. These single-family homes start around $130,000, but can be found for less.

“We’ve got a buyer’s market,” says Teeter. Due to the relative abundance of homes on the market, she says, “our area has more motivated sellers.”

The affordable prices have led to an increase in young buyers, ranging in age from 22 to 35, who take advantage of the lower credit scores required for USDA and FHA loan programs. Most just don’t have the credit history or scores to get into other kinds of more traditional loans, says mortgage banker Joey Starcher of Victorian Finance.

2. Clarksville, TN

Median home list price: $209,950
Share of borrowers with a 649 FICO score or lower: 35%

A home in Clarksville, TN
A home in Clarksville, TNrealtor.com

This quiet, family-friendly town along the Kentucky border is best known as the home to the U.S. Army base Fort Campbell. (It’s also just 45 minutes away from Nashville.) So it makes sense that many folks are becoming homeowners with the help of Veterans Affairs loans, which require a minimum credit score of just 620.

Most of local real estate agent Laura Stasko‘s clients are scoring entry-level, three-bedroom, vinyl-sided ranch homes in suburban areas near the base. These run from about $100,000 to $130,000—a fraction of the national median home price, just below $300,000.

But buyers on a budget in Clarksville, with its quaint downtown filled with older, brick buildings, stately Victorian houses, and parks, had better act fast.

“Anything under $140,000 or $150,000 has been flying off the market,” says Stasko.

3. Corpus Christi, TX

Median home list price: $239,750
Share of borrowers with a 649 FICO score or lower: 35%

Corpus Christi has plenty of attractions for buyers: It sits on a large, shallow bay that attracts a diverse flock of water birds, songbirds, and raptors. This helped it earn the title of—you guessed it—“America’s birdiest place,” according to the San Diego Audubon Society. There are plenty of jobs in the medical, oil refinery, construction, and, with nearby tourist destinations like Mustang Island, hospitality industries.

Yet the city has the fifth-lowest credit scores in the United States, with an average of 638, according to a report by Experian.

That hasn’t stopped people from buying houses. Buyers can still find 1,200-square-foot starter homes for under $160,000 in desirable areas within Corpus Christi like Del Mar and Lindale, says local agent Monika Caldwell of Hunsaker & Associates.

In addition to FHA loans, the city promotes multiple locally and federally funded home buyer assistance grants that help out buyers with down payments of up to $10,000. Not bad!

4. Lakeland, FL

Median home list price: $229,500
Share of borrowers with a 649 FICO score or lower: 30.4%

Lakeland, FL
Lakeland, FLnikonphotog/iStock

The citrus groves and cattle ranches that used to occupy much of the land around Lakeland has been gradually overtaken by 55-plus communities and housing developments for young families. That’s because housing prices have been soaring in nearby cities such as Tampa, where they’re a median $266,250, and Orlando, where they’re $260,000, according to realtor.com data.

“Someone with poor credit … has to go where the [home] prices are lower, ” says Monique Youngblood, mortgage broker with US Mortgage Lenders. “Florida is getting really expensive, and prices in Lakeland are still pretty decent.”

Buyers can find new homes in South Lakeland for around $180,000, says local Realtor® John Martinez of Coldwell Banker Residential Real Estate. Older properties from the 1970s start around $140,000. To afford them, most of Martinez’s clients are using FHA loans that require only about 4% or so down of the purchase price.

5. Augusta, GA

Median home list price: $218,000
Share of borrowers with a 649 FICO score or lower: 26.5%

Augusta, GA
Augusta, GASeanPavonePhoto/iStock

It’s easier to become a homeowner in Augusta, on the banks of the Savannah River, because home prices are just so much cheaper here than in much of the rest of the country.

Three-bedroom, two-bathroom homes in the millennial-friendly neighborhood of National Hills, right near the prestigious Augusta National Golf Club, can be picked up for $100,000 to $150,000. That’s good news for young buyers, many of whom haven’t had the time to build a strong credit history.

Local lenders offer competitive loan programs encouraged by the Community Reinvestment Act, designed to help buyers in low- to moderate-income Census tracts. Those programs require a minimum credit score of 620 and can include 100% financing for those who qualify.

“I do as many of those as I can,” says Brandon Mears, mortgage loan officer with South State Bank. “It’s a really great program for kids just coming out of college.”

Rounding out the metros with the highest share of mortgage borrowers with poor credit are Evansville, IN (at 26.3%); Tuscaloosa, AL (at 25.2%); Rockford, IL (at 25%); Youngstown, OH (at 24.9%); and Kalamazoo, MI (at 24.4%).

Got it? Now the bad news for those who dread logging onto Credit Karma: the housing markets where you need sterling credit just to compete.

Cities where you need good credit to get a mortgage
Cities where you need good credit to get a mortgageTony Frenzel

1. Santa Cruz, CA

Median home list price: $936,050
Share of borrowers with a 649 FICO score or lower: 4.3%

A three-bedroom home in Santa Cruz
A three-bedroom home in Santa Cruzrealtor.com

The market in Santa Cruz may not be quite as crazy as it is just over the hill in San Jose (where homes are a median list price of $998,000). But this Ferris wheel–graced beach town is still prohibitively expensive for many buyers, especially those with low credit. Those seeking mortgages are likely to need a jumbo loan—and thus a higher credit score and down payment.

“You might be able to find a small two-bedroom, one-bath house here in the low $800,000s,” says real estate agent Bri Chmel of Live Love Santa Cruz. That’s if you’re very, very lucky.

So buyers in this market, one of the sunniest spots along California’s northern coast, had better be ready to compete with all-cash offers from ultrawealthy, Silicon Valley techies. Best of luck with that.

2. Fargo, ND

Median home list price: $257,050
Share of borrowers with a 649 FICO score or lower: 5.4%

Fargo, ND
Fargo, NDDenisTangneyJr/iStock

Wait, what? How did Fargo make it to this side of the list? It’s all about growth. Set on the Great Plains on the western edge of the Red River, Fargo has a bustling job market that’s led to an influx of new residents in recent years. The population jumped 15.9% from 2010 to 2017, according to the U.S. Census. That’s led to a lot of folks competing for a limited number of abodes.

Buyers are snapping up entry-level homes under $200,000 like seagulls stealing Cheez-Its on the beach. Because the market is so hot, sellers are passing over buyers who have a harder time getting a loan. Larger down payments and conventional loans (requiring a minimum 620 credit score) are usually needed to be considered for a contract.

Seller’s agents are seeking pre-qualification letters that prove that buyers have already gone through all the steps to get approved by the bank. And when it comes to older homes, many sellers prefer to avoid FHA loans altogether to avoid the more stringent loan appraisal process.

“Sellers here can be pickier about how they want their home financed,” says John Colvin, broker-owner of Century 21 FM Realty.

3. Ann Arbor, MI

Median home list price: $350,000
Share of borrowers with a 649 FICO score or lower: 6%

Ann Arbor, home of the University of Michigan, is the quintessential college town, dotted with circa 1900 brick and wood-frame homes. In fact, it’s the most educated city in the United States, according to an analysis by WalletHub. That level of education correlates to above-average home prices, with $250,000 to $450,000 as the entry-level range.

That high starting point and lack of inventory make it hard for buyers to get in unless they have the income and credit to qualify for a conventional loan.

“It’s hard to get a home in Ann Arbor without very good credit,” says brokerMarge Everhart of the Marge Everhart Co. “I haven’t seen an FHA mortgage in years. Poor people are getting pushed out.”

4. Durham, NC

Median home list price: $356,300
Share of borrowers with a 649 FICO score or lower: 7.2%

A four-bedroom home in Durham
A four-bedroom home in Durhamrealtor.com

Every Tuesday, when James, the Urban Durham Realty owner, asks her 25 agents to raise a hand if they’ve put in or received offers on homes for their clients in the past week, almost all hands are in the air. When she asks those agents if they were involved in a multiple-offer situation, most hands remain raised.

“This is unprecedented,” says James. “Anything under $350,000 gets a lot of offers.”

The university town, one point of North Carolina’s Research Triangle, is a hub for the biotech industry and boasts a thriving startup culture while remaining relatively affordable. Just 10 minutes away from downtown in Southwest Durham, buyers have been trying to outbid one another on classic midcentury, brick, ranch-style homes in the midrange market of $350,000 to $400,000.

A bit farther out in more affordable North Durham, 10-year-old homes are going for about $250,000—if you can get an offer accepted.

“There are not a lot of FHA loan deals,” says James.

5. Boulder, CO

Median home list price: $612,550
Share of borrowers with a 649 FICO score or lower: 7.3%

Pearl Street Mall in Boulder
Pearl Street Mall in BoulderSWKrullImaging/iStock

On the edge of the Flatiron Mountains, Boulder boasts beautiful panoramas befitting a Coors ad. It regularly pops up on lists of the best places to live for its high quality of life, and plentiful gigs. These things just keep driving up the cost of real estate.

Most buyers need to be able to meet the strict requirements and high credit scores for a jumbo loan. With a jumbo loan limit of $587,000, buyers need to have a hefty downpayment, too.

Boulder is “surrounded by open space, but home prices have gone through the roof,” says Kelly Moye, broker with Re/Max Alliance and spokesperson for the Colorado Association of Realtors. They’ve risen 25% in just three years, from August 2015 to August 2018. “It’s unaffordable: People who need to get jumbo loans have to have exemplary credit.”

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Got Lousy Credit? 10 Places Where It Won’t Stop You From Buying a Home