Ocean City Today

How credit scores determine home loan approvals

Real Estate Report
By Lauren Bunting | Feb 22, 2018

(Feb. 23, 2018) Many renters want to become homeowners, but they are afraid that low credit score, debt or student loans may prevent them from their dream.

Understanding credit scores, and what factors credit reporting bureaus consider most when generating scores, is crucial to being able to manage your credit score.

The rule of thumb for an acceptable credit score to be approved for a home loan is 640. Some lenders and programs offer loans for credit scores under 640, but buyers will pay more to borrow the money, as well as over the term of the loan, by way of a higher interest rate when their score is below 640.

Except for extenuating circumstances, such as bankruptcies, judgments or outstanding tax payments, the following criteria is generally accepted as an accurate breakdown:

35 Percent Payment History– Recent delinquencies bring scores down more than those in the past.

30 Percent Balance– High balances over 75 percent of the available credit limit hurt credit scores. Small balances on multiple cards are more favorable than one maxed-out card.

15 Percent Credit History– Three to five lines of credit, and a loan with a long history is best.

10 Percent Type of Credit– Furniture and appliances stores’ “pay later” credit lines are less favorable and considered higher risk.

10 Percent Number of Inquiries–  These cost 5 to 15 points off your credit score per inquiry. Mortgage inquiries don’t count as long as they are within 14 days of each other.

“Credit Scores play a large part in qualifying borrowers for a mortgage, as well as how low of a rate they are able to obtain,” said Norman Tucker, local lender and branch manager at Apex Home Loans. “In addition to credit scores, lenders evaluate borrowers based on down payment, income, savings, debt loads, and other factors. If you begin your home search by getting preapproved with an experienced loan originator you are comfortable with, they will be able to help guide you in clearing up credit issues that can ultimately lead to a higher credit score and better loan terms.”

—  Lauren Bunting is an Associate Broker with Bunting Realty, Inc. in Berlin.

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