Credit Scores More Critical Than Ever in Mortgage Applications
Whether you are a business owner looking to purchase space for a company, an investor looking to own more rental properties, or a consumer looking at a mortgage refinance or to purchase a new home, heed these words:
Your credit score is more important now than ever.
In the state of Illinois, as well as the entire country, the criteria for mortgage lending has changed dramatically.
What was a whisper the last quarter of 2006 has become the painful reality in 2007 for the Illinois mortgage industry.
Just six months ago a new home buyer one day out of a bankruptcy discharge with a 580 FICO score or credit score could obtain 100 percent financing.
Today that same buyer would need a 620 FICO score. That’s a 40 point difference - a critical amount for many seekers of home mortgages!
Why has this happened?
Sub-prime lending, or bad credit home loans made for consumers with not great credit are showing higher rates of delinquency and foreclosure.
Last year sub-prime mortgages accounted for approximately $600 billion, or about one-fifth of the U.S. mortgage market. The late payment rate jumped to 13.33 percent in the fourth quarter, up from 12.56 percent.
This caused a mounting concern on Wall Street about troubles facing sub-prime lenders. In the last six months, many bad credit mortgage lenders have literally closed their doors.
Remaining sub-prime (as well as conforming mortgage) lenders have battened down the hatches and raised the criteria needed to obtain financing, with the most significant criteria being credit scores.
What can you, the investor, business owner, or consumer do to insure mortgage financing with an attractive interest rate?
Review your credit history now. Mistakes can show up on credit reports and lower your credit score. Get them removed.
Control your consumer debt. Keep your credit card balances to 30 percent of the card’s high limit, even if this means opening a new card and transferring some of the balance.
Better yet, pay your credit card debt monthly.
Do not open credit accounts needlessly.
Always, always, make your payments on time.
If you find that you need help repairing your credit, there are a number of agencies that offer credit repair for a fee, as well as a specialized mortgage broker that will offer the service complimentary.
Do this at least six months before obtaining the mortgage on that new business space, rental property or new home.
The time spent working on your credit will pay off in lower mortgage rates and the luxury of putting less money down.
SOURCE: Naperville Sun