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.
Meeting your family's changing needs: relocation or renovation, part 2
Over time, your family will change - it's unavoidable. As this happens, your housing needs might evolve with your growing family. Maybe you're welcoming an aging parent into your home, or the doctor just told you you're having twins. In any case, you may find your current home is too small or ill-suited for your changing lifestyle.
When this happens, you have two basic options. You can stay where you are and make renovations to meet your changing needs, perhaps by adding a bedroom or revamping the attic and converting it into a playroom. With programs like the Fannie Mae HomeStyle loan, these choices are easily attainable for many homeowners. Or, you can buy a new home that already meets your needs.
While both options are valid, sometimes a new house in a new neighborhood might be a better option for your situation than renovating your current home. Here are a few examples when this might be true:
Renovation isn't possible or doesn't make sense
Certain renovations may be hard on a given property. For example, say your changing priorities create a need for an extra bedroom, bathroom or a larger family room. This may call for an expansion, but if your yard space is limited, building your home outward may not be feasible. A homeowner might consider renovating the basement into a new bedroom or a mother-in-law suite, but if the cellar is prone to flooding, has a dangerously low ceiling or other foundational flaws, addressing these challenges may require more time and money than they're worth, MoneySense pointed out.
While some homes face insurmountable obstacles to renovations, others take to upgrades really well. However, there is such a thing as too much remodeling, Bankrate pointed out. Will your newly remodeled home look like a mansion among starter houses? If so, chances are the people home shopping in your neighborhood might not be looking for a house quite like yours when it comes time for you to sell, which will make recouping the costs of your hard work a challenge.
Local rules make renovating a challenge
Usually, when a homeowner makes major changes to a home, he or she needs to obtain a permit to do so. This allows the local government to ensure that changes you make aren't infringing on your neighbors or decreasing the value of the homes around you. In some cases, your plans can be turned down. If you live in a historic home or neighborhood, you may not be permitted to make the changes you need, Realtor.com pointed out. Owners of historic homes generally can't add square feet or another story, for example.
You might make out in the sale
Though being a buyer in today's real estate environment can be frustrating, a seller may have a different perspective. With limited inventory available, putting your home up for sale could attract determined homebuyers willing to move fast and increase their offers. According to NAR, in March, homes only lasted an average of 34 days on the market, an 11-day decrease from February. Further, prices increased 6.8 percent year over year to a median of $236,400.
Construction will take too long or be too stressful
The choice to renovate is followed by several months or even more than a year, in some cases, to complete, The Washington Post pointed out. During this time, your home may have makeshift walls, sawdust on the floor and construction crews hammering away during the day. For many, such as those who work from home offices, this is too much of a nuisance for their lifestyle. Or, if your parents and soon-to-be housemates need to change their living situation sooner rather than later, a renovation may not be a quick enough solution.
Knowing the best way to meet your family's changing housing needs isn't always simple or clear. Luckily, homeowners today have excellent options for an affordable renovation loan or a new residential mortgage. While one might be a better choice for a family than another, both are available when you work with Academy Mortgage.
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.
Is refinancing my mortgage a good idea?
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