No question. Credit is the key determinant of your ability to get a loan and/or the terms of that loan. The better the credit, the better the terms. The credit scoring system is imperfect, but it is the best we have to predict the likelihood of a borrower’s ability and willingness to pay back a loan. However, before you give up on owning a home – there are steps you can take to see if your credit will prohibit you from buying today, and if your credit needs some polishing – there are steps for that as well.
Let’s start with what we call a FICO score. FICO is a proprietary brand name. It stands for FAIR Isaac Score – it is a software program that many lenders use to sort and tabulate the data that determines if you are a good credit risk. A FICO score is a three-digit number ranging from 300 to 850 (and up to 900 for some industry-specific scores). The minimum FICO credit score for an FHA loan is 500 or higher. If your score is at least 580, you also need at least a 3.5% down payment. You can still get approved for an FHA loan with a credit score lower than 580 and down to 500, but you’ll need a larger down payment of at least 10%. A lower score may also affect the interest rate you get on a loan (a fact you may have discovered when you last purchased a car). If your FICO score is 700 or higher you are considered a great candidate for premium terms on your loan.
There are many on-line sources to do a cursory check of your credit score. Federal law also allows you to request a free report from each of the national credit reporting companies once every 12 months at www.annualcreditreport.com. The free annual report does not include a credit score, but you can purchase your credit score when you request your report. Any loan officer can also pull a credit report for you. The pulling of this report can affect your score if it is done several times, so make sure you are serious about purchasing or working on your credit before you ask this to be done.
What if your credit score is too low to purchase a home? Good news here: a good loan officer can help you “rehab” that score and give you a time frame in which to expect to see your credit score rise. Follow the instructions of an expert and within months or a year you will have positioned yourself for homeownership.
The Kathy Chiero Group of Keller Williams Greater Cleveland works with a great team of lenders. Contact us for a referral and let’s get going finding you a house! Find us at www.OurOhioHome.com.