What Credit Score Do You Need To Buy A House?

What Credit Score Do You Need To Buy A House?

What Credit Score Do You Need To Buy A House? | MyKCM

There are many misconceptions about the credit score needed to buy a house. Recently, it was reported that 24% of renters believe they need a 780-800 credit score to be considered for a mortgage. The reality is they are misinformed!

Only 25% of the Americans have a FICO® Score between 740 and 800. Here is the breakdown according to Experian:

  • 16% Very Poor (300-579)
  • 18% Fair (580-669)
  • 21% Good (670-739)
  • 25% Very Good (740-799)
  • 20% Exceptional (800-850)

Randy Hopper, Senior Vice President of Mortgage Lending for Navy Federal Credit Union said,

Just because you have a low credit score doesn’t mean you can’t purchase a home. There are a lot of options out there for consumers with low FICO® scores,”

There are many programs available with low or no credit score requirement. The Federal Housing Administration (FHA) now requires a minimum FICO® score of 580if you want to qualify for the low down payment advantage. The US Department of Agriculture (USDA) does not set a minimum credit score requirement, but most lenders require a score of at least 640Veterans Affairs (VA) loans have no credit score requirement.

As you can see, none of them are above 700!

It is true that the average FICO® score for all closed loans in January was 726, but there are plenty of people taking advantage of the low credit score requirements. Here is the average FICO® Score of closed FHA Loans since April 2012 according to Ellie Mae:What Credit Score Do You Need To Buy A House? | MyKCMAs you can see, that number has been dropping for the last seven years. As a matter of fact, the average FHA Purchase FICO® Score reported in January 2019 was 675!

One of the challenges is that Americans are unsure about their credit score. They just assume that it is too low to qualify and do not double check. Credit.comconfirmed that only 57% of individuals sought out their credit score at least once last year.

FICO® reported,

Since October 2009, the average year-over-year FICO® Score has steadily and consistently increased, from a low of 686 in 2009 to the latest high of 704 as of 2018.”

Here is the increase in the average US FICO® Score over the same period of time as the graph earlier.

What Credit Score Do You Need To Buy A House? | MyKCM

Bottom Line

At least 84% of Americans have a score that will allow them to buy a house. If you are unsure what your score is or would like to improve your score in order to become a homeowner, let’s get together to help you set a path to reach your dream!

Weekly Newsletter

Here is this weeks review of what is moving mortgage rates from last week, what you can expect this week and thoughts on what could move mortgage interest rates going forward.  Please let me know if you have any questions.

MBS-Road-Signs-03-18-2019

All the best,

Lee McLain

7 Things To Avoid After Applying for a Mortgage!

7 Things To Avoid After Applying for a Mortgage! | MyKCM

Congratulations! You’ve found a home to buy and have applied for a mortgage! You are undoubtedly excited about the opportunity to decorate your new home! But before you make any big purchases, move any money around, or make any big-time life changes, consult your loan officer. They will be able to tell you how your decision will impact your home loan.

Below is a list of 7 Things You Shouldn’t Do After Applying for a Mortgage! Some may seem obvious, but some may not!

1. Don’t change jobs or the way you are paid at your job! Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.

2. Don’t deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.

3. Don’t make any large purchases like a new car or new furniture for your new home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios… higher ratios make for riskier loans… and sometimes qualified borrowers no longer qualify.

4. Don’t co-sign other loans for anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payment against you.

5. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer money between accounts, talk to your loan officer.

6. Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.

7. Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.

Bottom Line

Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.

Weekly Newsletter

Here is this weeks review of what is moving mortgage rates from last week, what you can expect this week and thoughts on what could move mortgage interest rates going forward.  Please let me know if you have any questions.

MBS-Road-Signs-03-11-2019

Have a great week!

Lee McLain

The Housing Market Will “Spring Forward” This Year!

The Housing Market Will “Spring Forward” This Year! | MyKCM

Just like our clocks this weekend, in the majority of the country, the housing market will soon “spring forward!” Similar to tension in a spring, the lack of inventory available for sale has been holding back the market.

Many potential sellers believe that waiting until Spring is in their best interest. Traditionally, they would have been right.

Buyer demand has seasonality to it. Usually, this falls off in the winter months, especially in areas of the country impacted by arctic conditions.

That hasn’t happened this year.

Demand for housing has remained strong as mortgage rates have remained near historic lows. Even with an increase in rates forecasted for 2019, buyers are still able to lock in an affordable monthly payment. Buyers are increasingly jumping off the fence and into the market to secure a lower rate.

The National Association of Realtors (NAR) recently reported that in 2018 the top 10 dates sellers listed their homes all fell in April, May, or June.

Those who act quickly and list now, before a flood of increased competition, will benefit from additional exposure to buyers.

Bottom Line

If you are planning on selling your home in 2019, meet with a local real estate professional to evaluate the opportunities in your market.