Your credit score questions, answered
Before you take out a residential mortgage, your lender will need to review some financial information with you, one piece of which is your credit report.
If you've never pulled your credit report or considered what your credit score might be, this part of the process might make you nervous. It shouldn't, though; your credit report and credit score will simply tell the lender how good you are at paying off debt and how much debt you currently have. The higher your score, the better, but that doesn't mean you won't be able to secure a good home loan with an unimpressive score.
Here's what you need to know about credit scores, credit reports and how they affect the mortgage origination process:
What's a credit score?
Your credit score is a three-digit number on a scale of 300-850. Everyone has multiple credit scores because different credit bureaus calculate them independently. To come up with the three-digit score, the companies use complicated proprietary equations.
Even though they don't share the equations with the public, FICO, the most well-known score-calculating company, explains how different factors impact your score:
- 35 percent of your score relates to payment history.
- 30 percent relates to amounts owed currently.
- 15 percent relates to how old your oldest form of credit is.
- 10 percent relates to the diversity of debt you own.
- 10 percent relates to how new your newest form of credit is.
What is a "good" or "bad" score?
Generally, scores that are 700 or above are considered good, and scores over 750-800 are considered excellent. These scores indicate you pay your bills on time and know how to manage multiple forms of debt, making you an excellent candidate for a home loan.
Scores of 550-580 or below are considered very poor. It would be difficult to get a loan of any kind with a score like this. If you discover that your score falls into this category, though, don't worry; there are plenty of strategies you can adopt to bring your score up.
Does everyone have a credit score?
No. If you've never opened a credit card or taken out a loan, you may not have a score, meaning you're "credit invisible." This can make taking out a loan challenging, but not impossible.
What score do I need to get a mortgage?
There's no clear-cut answer to this question because different programs have different requirements. People with credit scores as low as 580 may be able to get an FHA loan, and there's no minimum credit score for VA loans. The best thing to do is to reach out to your mortgage lender and talk about your options - you may have more than you think!
What's a credit report?
While many people talk about credit scores, your lender will want to see your entire credit report. There's a difference here; your score is just that three-digit number. The credit report details what factors went into the equation that resulted in your score.
Your lender will likely pull your credit report directly from one or more of the three main credit bureaus: Experian, Equifax and TransUnion. But don't wait for your lender to pull the report to discover what's included in it for yourself. Everyone has access to their own reports through the government-mandated website, annualcreditreport.com. You can get one free credit report each year from each of the three bureaus.
If you've never pulled your credit report, try it today. There's always a chance that there's an error included in it that could affect your score, and it's best to sort that out sooner rather than later. Plus, it's always nice to know what your lender will see ahead of time, so there's no surprises when you inquire about your eligibility for a home loan.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2016 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.
How to find the perfect real estate agent
Making a home purchase is a big decision and a huge financial commitment. With the stakes so high, it's nice to have someone in your court to help you find a suitable home and advise you on making a good offer - this person, of course, is your real estate agent.
Finding a real estate agent that you like to work with and has your best interests in mind is the first step many people take in their house-hunting journey. But it takes more than just finding the first agent a Google search comes up with; it's important to know that the agent is experienced in finding the type of home you're looking for and is someone you can get along with.
Ask the right questions
Before looking at homes and reviewing residential mortgage options, interview a handful of agents to choose the right person to hire. Ask them:
- How long they've been a real estate agent - in general, and specifically in your area.
- How they plan to find you the perfect home.
- For a list of references.
- For a list of recent sales.
If an agent is new to the industry or new to your area, he or she may not have the industry knowledge to find your ideal spot. This is one reason it's important to inquire about how the agent plans to find you homes to tour.
Some agents simply review the multiple listing service and quickly search for homes in your price range and preferred neighborhoods. Sometimes, this simple step is enough to find your ideal home; other times, a little more legwork is necessary. A dedicated and experienced agent will know how to seek out homes that aren't on the market yet or how to issue a direct mail campaign for their client, NerdWallet explained.
Look at their backgrounds
There are certain licenses and certifications that real estate agents either must or may want to pursue. Find out which qualifications your potential agents have.
First off, they should be licensed by the state you're looking for a house in. You can usually find this information online, Bankrate noted. Additionally, you may be able to find about any complaints filed against the agent through the regulatory body that licensed him or her. This information is good to know before moving forward with this person.
Next, find out what additional certifications the person pursued. An important one is a National Association of Realtors membership - this means the person knows, understands and adheres to a code of ethics with their clients. Other distinctions might include:
- Seniors Real Estate Specialists are trained in helping senior citizens find the right home for them.
- Certified Residential Specialists have been trained specifically in residential real estate.
- Accredited Buyer's Representatives completed training in representing buyers in real estate transactions.
Agents may list these designations on their website or in acronyms on their business cards. Or, you can simply ask about additional training they've completed.
Make it official
Once you've determined who the best agent for you is, it's time to move forward with that person. Agents typically want their clients to be exclusive to them. Real estate agents make their money on the buying or selling of a home; if your agent helps you find a home but you wind up closing the deal with another agent, that person did a lot of work for no payout.
To protect themselves from getting swindled by inconsiderate or uninformed buyers, many agents require clients to sign a buyer's agent agreement. If you sign this form, legally you can't go with another agent unannounced. But, if you find that you and the agent aren't a good fit, you can terminate the contract and move on with someone else, Realtor.com reported.
If you haven't signed a contract but have met with the agent on several occasions, that person might assume (whether correctly or incorrectly) that you are exclusively working with him or her. This could simply be a rookie mistake on the agent's part, so you might want to step up and get clarification.
"Once you've found this special agent, you should sign a buyer's agent agreement to make it official," Rosanne Nitti, a california-based Realtor with RMN Investments & Realty Services. "This means you can both move forward with confidence - which is important when you're embarking on something as huge as buying a home."
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2015 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.
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