One of the most important factors in obtaining mortgage financing is good credit. As lenders are trying to mitigate risk one of the major factors is your beacon/credit score. All lender and insurer programs have beacon score requirements.Typically a minimum beacon of 600 to 620 is need for most programs.Iif you are self employed and are applying through a Stated Income program and 95% financing you would need a 700 score, stated income and higher loan to value is a higher risk so a higher credit score is required. Again it all comes down to risk management. So what do these numbers mean and how are they derived...
600 and above is good credit, 680 and up
is great credit, anything higher into the 800's is obviously
stellar. 400's to 600's is considered "bruised" and will limit
the amount of regular lending programs available. However,
financing is still available at higher mortgage rates and posssibly
fees due to the greater risk.
The factors that effect your credit score are:
35% Payment history, Lenders are looking
at your prepayment history, are you paying your bills on time.
30% Amount Owed. This is not a dollar
amount but a percentage of your credit limit. If the money owed is
over 80% of your limit it will effect your score negatively. If it
is over the limit, even by $1 it has a major effect.
15% New Credit. how are you managing your new debit. This usally
means greater monthly debt payments, can you afford to maintain
good repayment
10% Length of Credit history. If you have had credit lines for 10
years as opposed to 1 year, shows consistency.
10% Credit type . a line of Credit is harder to get than a store
card so it will carry more weight.
Some people who have had credit issues "cut up " their cards. Bad
idea in maintaining a good credit score. You need activity to show
you can repay your debt. I suggest using a card for gas only and
paying it off monthly, or 1 dinner a month. This keeps your score
reporting positevly. Part of a credit report shows when last active
and lenders like to see current reporting.
Bottom line is establish a few credit lines and pay your bills on
time and you will have no worries obtaining mortgage financing
