This week, I have the pleasure of welcoming Whit Douglas of Corridor Mortgage Group to the Nest Blog. He’s here to answer some of the major questions first-time homebuyers have when facing the daunting process of securing financing.
Before we jump in, a little background. Agent B recommended Whit to us, and he has been a life saver. I asked him to participate in a Nest Blog post to share his great insight with our readers. Little did we know that one blog would not be enough (not even close!) so we’ve decided to split our discussion over the next several posts.
So, hang on to your hats and let’s talk mortgages! First topic up…credit scores.
Nest Realty: The all powerful “Credit Score”…what do we really need to know when it comes to this important part of the process?
Whit Douglas.: It’s hard to believe that three little numbers can have such an impact on the purchase of a home. The credit industry, and don’t tell them I said this, is a bit of a mystery and hard to completely nail down. However, there is a breakdown that can give you a general idea and here’s one place to check it out. It will vary depending on what industry is pulling your credit as well as what your particular credit looks like, but the chart on this website gives a general idea of what they look for. The idea of a credit score is that it gives the lender an expectation of how likely it is that you will pay back your monthly obligations. With the frequency of foreclosures over the past few years, lenders have really started to focus on credit scores and anything else that helps give confidence that you will repay your mortgage in a timely manner. Mortgage rates are based in part off of the risk that a lender feels the client represents. Therefore a higher credit score (or lower) can impact the cost of the loan and the rate you can lock in. It’s not that you are just a number, but…Kidding, there are certainly many more factors than just credit scores that we look to, though it is certainly an important one.
Nest Realty: There are so many factors that go into your credit score. What should we be focusing on?
W.D.: I know it is easy to get overwhelmed when considering the amount of items that impact your credit score, however, there are a few big ticket items that you can focus on to help improve the number. The first is late payments. It sounds simple, but paying your bills on time makes a huge difference. If you miss a deadline, try to dispute the charge, you’d be surprised how often financial institutions will bend if you’re a first time offender. Also, we all have credit cards, but it’s important that balances stay below 25% of your limit. Lastly, consider taking on a couple of credit lines to establish a positive credit history. There’s a fine line here, so, conversely, don’t go out and apply for every no balance credit card you are offered in the mail. Credit cards aren’t the only things that can establish credit history. Things like car loans actually qualify under this bucket as well.
N.R.: We just recently applied for an apartment to hold us over until we find a house. Will our landlord’s credits check affect our credit scores?
W.D.: Not in any substantial manner, and on top of that your credit will repair from that in a short time. Meaning, by the time you apply for a mortgage that credit check your landlord did should not have any impact on your score of note. Whenever we pull credit we see who has pulled your credit in the past 120 days and we ask for an explanation. So, as you get closer to applying for a mortgage, if possible it is best to not have too many people checking your credit because if your report shows a number of credit card companies, auto companies, etc. then it could raise some red flags as to why you are applying for so much credit.
N.R.: Good to know. Anything else we should do RIGHT before applying for a loan that might affect our score?
W.D.: It can help to utilize AnnualCreditReport.com which allows you for free to see your credit report (not score) once a year from each of the big three credit agencies. When you see those reports go through them and be sure to dispute items such as if your name appears in different forms, incorrect residential living addresses, late payments, and certainly if you see additional information (particularly deragorty ones) that do not pertain to you. On top of that certainly stay timely on your monthly debts.
N.R.: What credit score should we be aiming for?
W.D.: Ideally, if you are getting a conventional loan you want your middle credit score (yes, you have more than one score!) to be above 740. However, if you are looking into government loans such as FHA you want your score to be above 640.
N.R.: So what if your credit score is (cough, cough) less than stellar?
W.D.: Nobody is perfect, and I have helped many clients improve what started out as a “low score.” Just remember that there are always steps you can take to improve your attractiveness to lenders. Above all else, don’t be afraid to show your mortgage lender a low score. We are here to help! I have worked with a number of clients whom within a few months time we have taken their score from very low to right where we need it.
N.R.: Thanks, Whit!
So ends our first blog on first-time homebuyer finances. What’s up next week in this Q&A? We’ll ask Whit how much documentation he really needs to help us apply for a mortgage.
(Spoiler alert: You need a lot. Like mountains of paper. Like, go out right now and buy an entire notebook before next week’s post to hold all the paper you will amass. I kid. But not really.)