Good Credit Mandatory for Mortgages in 2010

Michelle Y. Graves

“The Money Lady” 

Is this you?

You want to refinance your home to payoff a few bills, consolidate several credit cards and even take a much-needed vacation; or perhaps you want to refinance to lower your monthly payments given today’s favorable fixed interest rates; or maybe you are one of the millions of homeowners who have an adjustable rate mortgage that recently reset to monthly payments you cannot afford; or perhaps you are one of the many apartment renters who want to take the bold leap into homeownership, become a part of the ‘American dream, and take advantage of the $8,000 tax credit for new homeowners.

In case you have been asleep, the last three years have been devastating for the housing market. Residential real estate values continue to fall and foreclosures at an all-time high. While many economists predict that the worst is over, the sad reality is that stabilization will be a long process. The days of easy mortgage lending, finance companies and sub-prime lenders for poor credits, and even ‘no questions asked’ lending are not only over, but those days are finished.  With very few exceptions, lending is going back to where it was in the late 1990s, and its going back fast.

Here are the blunt facts.  The banking industry is carefully reassessing the concept of ‘risk’ and ‘collateral’ in making its mortgage lending decisions given today’s economic climate.  Lacking excellent credit, a conservative ‘pay as you go’ debt history, good employment stability, and a strong credit score, your chances of securing a mortgage loan will be difficult.  Banks will continue to make mortgage loans, since this is their business, but for you to qualify for approval, you must be prepared.  Lenders are looking for borrower profiles that  say “I’m stable, I live within my means, I pay my bills”. 

Actually, this is not a bad thing.  In times past, homeownership was a very serious commitment with a significant down payment required.  Perhaps you remember when your parents scraped and saved to buy a home.  There were no special programs or considerations---just lots of hard work and discipline. 

Given this new environment, credit has taken on greater importance with credit scoring being the critical component. The credit score tells a lender how well you handle your financial obligations, how promptly you pay your debts, as well as any collections, judgments, liens and unpaid obligations you have.  It is not perfect, but it is a good snapshot of how stable a potential borrower you are.   Borrowers will need a FICO score of at least 730 to get the best mortgage rates. With FHA and VA programs, your FICO can be as low as 620 but you will need strong compensating factors to offset this score.

To ensure that your credit score is as strong as possible, borrowers should access their credit reports BEFORE making application for any mortgage loan.  The Fair and Accurate Credit Transactions Act entitles consumers to one free credit report from all three major credit reporting bureaus—TransUnion, Equifax, and Experian—each year. (The free reports can be obtained at www. Annualcreditreport.com.).  While the reports are free, you will have to pay to obtain your credit score.  Examine each report to make sure it doesn't include any errors. .One in four contain errors serious enough to result in a denial of credit. As for your score, the scale ranges from 300 to 850; the median is 723. The higher your score, the lower the interest rate you'll be charged when you borrow. 

For a Free Guide to “Improving your Credit Score” contact me on my website www.michellegravesonline.com or call 1-866-411-7432 and press “1”.

Michelle Y. Graves, “The Money Lady” has been involved in the fields of banking and investments for over thirty years.  She was the first African-American woman inducted into the Ohio Women’s Hall of Fame for her achievements in banking and has a frequent contributor to the Cincinnati Herald on money matters.