Would You Qualify for a Mortgage Now?

The widespread myth that perfect credit and large down payments are necessary to buy a home are holding many potential home buyers on the sidelines. According to Ellie Mae's latest Origination Report, the average FICO score for all closed loans in May was 724, far lower than the 750 or 800 that many buyers believe to be true. Below is a graph of the distribution of FICO scores of approved loans in May (the latest available data): 

Looking at the chart above, it becomes obvious that not only do you not need a 750+ credit score, but 54.9% of approved loans actually had a score between 600 and 749. More and more experts are speaking up about the fact that if potential buyers realized they could be approved for a mortgage with a credit score at, or above, 600, the distribution in the chart above would shift further to the left. Ellie Mae's Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage:

"The high median credit score is due to many millennials believing they won't qualify with the score they have - and are therefore waiting to apply for a mortgage until they have the score they think they need." CoreLogic's latest MarketPulse Report agrees that the median FICO score does not always tell the whole story:

"The observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity."

It's not just millennials who believe high credit scores and large down payments are needed. Many current homeowners are delaying moving on to a home that better fits their current needs due to a belief that they would not qualify for a mortgage today.

So what does this all mean?

Moe put it this way:

"Many potential home buyers are 'disqualifying' themselves. You don't need a 750 FICO Score and a 20% down payment to buy."

Bottom Line

If you are one of the many Americans who has always thought homeownership was out of their reach, meet with a local real estate professional who can help you start the process of being pre-qualified to see if you are able to buy now! 

Looking to Buy, Sell, or Invest? Contact:

David Demangos

858.232.8410

Locally Known, Globally Connected

Luxury Home Marketing Specialist

Global Property Specialist

David@AwesomeSanDiegoRealEstate.com

www.AwesomeSanDiegoRealEstate.com

Our Team Goes to Extremes to Fulfill Your Real Estate Dreams!

Could Your Credit Score be Hurting You?

Informed consumers considering a home purchase today want to do the right thing and plan ahead. Many do not seek immediate professional guidance from a Realtor or a mortgage loan officer. Instead, they hunt for hours online, looking at numerous websites for available homes for sale. They also consult websites to find the best interest rate and terms for future monthly mortgage payments. Many consumers feel betrayed, cheated and at times embarrassed to learn that the credit scores they counted on, to get that specific interest rate for their loan, are not used by mortgage lenders. When shopping for a good mortgage interest rate, consumers also need to know their credit score, and utilize an online mortgage calculator to compute future monthly mortgage payments. Consumers accept the provider’s terms and conditions to get a free credit score. Terrific! Unaware that in exchange they just received a meaningless credit score that lenders never use. They also handed over their Non-Public Personal Information (NPPI) to that credit score provider for life. Look at available credit scoring products available to consumers today: 

- FICO credit score from Fair Isaac Corporation/myfico.com, range 300 to 850

- Plus Score from Experian, range 320 to 830

- Trans Risk Score from TransUnion, range 300 to 850

- Equifax Credit Score from Equifax, range 300 to 850

- Vantage Score from all three bureaus, two ranges, 300 to 850 and 501-990

What is a FICO Score?
In 1958, Bill Fair and Earl Isaac, a mathematician and engineer, formed a company in San Rafael, California. They created tools to help risk managers make a better decision when taking financial risk. Today, 90 percent of all lenders use the FICO score, first created in 1989 by Fair Isaac, and it’s the only score Fannie Mae and Freddie Mac, the Federal Housing Agency and Veterans Affairs will accept in underwriting loans they guarantee. 

What is a Consumer Score?
The three credit bureaus, in their understanding of the credit scoring model created by FICO, decided to create their own scoring models, and in 2004 – 2006 they unveiled the “consumer” scores: Plus Score, Trans Risk Score, Equifax Credit Score, and Vantage Score. However, these are not genuine FICO scores, and mortgage lenders don’t use them. Consider this comparison: Would you buy a watch that gives the approximate time of day? The three credit bureaus work with major financial institutions, professional organizations, comparison sites, personal finance businesses, clubs such as Costco, AAA, Sam’s Club, and many data-mining brokers to bombard consumers in the race of the free credit score mania, all with the enticement of a “consumer” score that is not used by lenders, in hopes of obtaining subscriptions or fees from consumers. Fees that are totally unnecessary!
Know Your Score

Gaining access to one’s own credit report and credit score prior to loan approval with no strings attached could be helpful, and at all times beneficial. With little effort, inaccuracy of information can be instantly corrected at the credit bureau level, and with a few simple steps, credit scores could be enhanced. For example, paying down revolving account balances before a creditor’s statement-ending date (the creditor later updates account information with the credit bureaus), thus reducing revolving account balances at a particular point in time, will positively add more points to a score. It’s priceless. 

More Information

Consumers have a legal right to access their annual credit report at no charge once a year from annualcreditreport.com, a site sponsored by the three major credit bureaus: Experian, Equifax and TransUnion. These reports provide all the basic consumer data, but do not reveal a credit score. If you have a need for the FICO credit score that is actually used by mortgage lenders, myfico.com is the website to visit. For $19.95 per bureau, consumers can purchase a customized credit report with a genuine FICO score. Additional websites to visit: the Federal Trade Commission (ftc.gov) and the Consumer Financial Protection Bureau (cfpb.gov) for true answers to questions about any financial concepts, financial products, dispute and complaint submissions, and much more.

For assistance with credit, feel free to reach out to me...

David Demangos

Global Property Specialist

858.232.8410
David@AwesomeSanDiegoRealEstate.com
www.AwesomeSanDiegoRealEstate.com
Our Team Goes to Extremes to Fulfill Your Real Estate Dreams!