As a home buyer, you should be aware that "different" credit is required to qualify for a real estate purchase loan than the type of credit you would obtain if you were purchasing a car or receiving retail credit at a department store.


Common Credit Myths:

A. You need to pay off your credit card debt ~

B. You need to close your credit accounts ~

C. You need perfect or good credit to buy a house.


Credit Facts:

A. Paying off your credit cards actually lowers your credit score ~

B. Closing credit accounts lowers your credit score also ~

C. You don't need to have perfect or excellent credit to buy real estate.


Q. Why shouldn't you pay off your credit card debt?
A. Because credit card accounts that have been paid off do not compute in your credit score.
Real estate lenders like to see open, active accounts with low balances.

Q. Why not close credit accounts?
A. Closing accounts before the pay-off costs consumers more money. 
Credit card companies raise interest on closed accounts.

You can buy real estate with poor credit, but you will save thousands in loan costs and interest over the life of the loan if you maintain good credit. A bad credit report leaves home buyers with sub-prime loans which have higher point charges, prepayment penalties, and higher interest charges, which therefore cost more money than A-paper applicants. For example, a mortgage loan of $150,000, 30-year fixed rate mortgage, interest rate of about 5.72 percent costs around $870 a month.  Poor credit scores will raise the interest rate to over 9 percent and likewise the payments over $1,200.

As you can see from these differences in monthly mortgage payment, good credit means that you can finance a more expensive house with the same income, or save $330 each month.


Credit Requirements for Mortgages:

Credit needed to buy real estate is not the same thing as just having "good" credit. Unlike other credit grantors, such as car dealers or department store credit card companies, mortgage lenders not only consider your FICO credit score, they also consider your debt-to-income ratio and other credit matters. Your debt-to-income ratio is the comparison of mortgage payment, including taxes, interest, and insurance in relation to your total gross monthly income. Real estate lenders also consider your employment qualifications and your overall debt ratios.

Understanding the difference between good credit and the type of credit needed to obtain real estate financing helps you to better understand the mortgage loan process.

If you would like a no-obligation consultation with a local lender, give us a call at 1-877-726-6539 or complete the Buyer Registration for a referral.

The best things you can do in the mean time are to continually pay all your bills on time and be responsible for your credit. Take a look at these free booklets to help you understand how your FICO score is calculated and what else your score considers.
http://www.myfico.com/Downloads/Brochures.aspx#uycs?LPID=FICO178