This article is sponsored by our good friends at Mortgage Lending Solutions in Monaca. If you are looking to talk to an expert about your next mortgage with absolutely no strings attached, we absolutely recommend stopping into MLS!
Your credit score goes with you wherever you go. You can’t run or hide from it. You can only own it, and make it better or worse.
We’ve written in the past about simple ways consumers can go about improving their credit scores, whether it be paying your credit card bills in a timely manner, making sure all utilities are paid on time, car payments are prompt, mortgage payments are processed, etc. Your credit score can affect different types of loans you may qualify for.
I was able to speak with mortgage expert C.J. Williams from Mortgage Lending Solutions about the different way credit scores can affect loans.
Does your credit score affect the type of mortgage or loan you qualify for, and if so, how?
Absolutely! Conventional loans have pricing “add-ons,” or penalties, for various things such as credit score and loan to value. These can stack up and change the rate for a new buyer.
For example, a borrower may want to purchase a new home with 5% down and use a conventional loan. The borrower may have a 640 score and the house may have a sales price of $120,000. The loan consultant would price the base price (maybe it is 3.875 for 30 years), but then the loan officer has to account for the add-ons to the price.
FNMA charges an add-on of 2.75 points for a credit score of 640 with an LTV of 95%. So, for that borrower to receive a 3.875 interest rate, the borrower will have an increase in his closing costs of $3300.00 ($120,000 x 2.75). Instead of increasing the closing costs by $3300, the loan consultant usually increases the rate up to compensation for the increased closing costs.
Can a person improve their credit score in a year or two significantly enough to refinance their mortgage and qualify for a better rate?
Yes! I often tell customers that they are only a year away from having a good credit score. Credit scores are affected by a lot of factors, and sometimes just making small changes in the way a borrower uses credit can make large changes in their credit score.
What types of issues are you currently dealing with from customers who have poor credit scores and the types of mortgages they qualify for?
I see a lot of customers who have very little established credit where monthly payments are reported to the credit bureau. Those customers are paying for items mainly with cash because they had a bad credit experience several years ago and felt that was the way to stay out of credit trouble. Those customers often have a low credit score because they don’t have trade lines of credit established, like a car loan or a Visa account.
Other issues I see are a lot of medical collection accounts. Paying off the small medical collection accounts can make a large difference in credit scores.
Foreclosures and bankruptcy usually have a wait time before a person can buy another house, but customers can still establish credit in the meantime. Most banks in the area offer secured Visa cards. This is a credit card which is guaranteed by money you place in the bank in a savings account. The customer signs an agreement with the bank which states if the customer defaults on the Visa card, the bank will withdraw the guarantee and pay off the credit card. This allows the bank to help the customer re-establish credit with no risk to the bank.
Does MLS match interest rates on mortgages if a bank is offering a lower interest rate than MLS?
Yes, but circumstances exist where MLS cannot match the rate of other lenders. Most banks have a “high net worth” program for mortgage borrowers, and because the lender is a bank, they may have some abilities to lend to customers which we cannot. Mortgage Lending Solutions works very hard to find the best rate and mortgage program for each borrower.
Want to Learn More About Credit Scores and Loans?
If you would like some more information on credit scores and loans from our friend C.J. at Mortgage Lending Solutions, just fill out this simple form and let us know what you would like to know!
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