You may be right! Maybe your credit is not acceptable to a home loan lender but before you make that arbitrary decision let’s look at how lenders look at your credit and debts and past events like foreclosure or bankruptcy – just to be sure.
Lenders vary in what they can accept. We can accept a 620 score or higher for a conventional loan, an FHA loan and VA loans.
Foreclosure is looked at very differently depending upon the loan program; for conventional loans, seven years must have passed since the foreclosure was finalized. FHA only requires 3 years and VA only requires 2 years.
There are two main types of bankruptcy, chapter 7 and chapter 13. For chapter 7, conventional loans can be obtained after 4 years from discharge, FHA and VA both after 2 years. For chapter 13 bankruptcy conventions allows a home loan after 2 years from discharge, FHA and VA after 12 mo.
Let’s start with the credit score system. There are three bureaus; Experian, TransUnion and Equifax.
They each issue a score and the middle score is the one that is used. For example; your scores are 700, 710 and 720. The lender will use the 710 score in that case. But be aware that your co-signer’s credit needs to be acceptable as well. Say for example you are married and your spouse has 630, 640 and 650 scores. Even with your middle score being 710, the lender will take the lowest middle score, in my example that would be 640.
Interest rates increase as credit scores go down.
So what is reviewed when determining a credit score? 30% of your score is based on the amount you owe. So for example; if you have a $5000 card limit and owe say $1000 then that would not negatively impact your score. It shows you use credit but in moderation. But if you owe $4999 on that $5000 card limit, that would knock your score down.
How have you paid 35% of your score? If you pay all your bills on time, then that’s ideal. But if you have some 30 day late payments, or 60 day late or 90 day late, each of these will lower your score. And obviously collections can impact the score as well.
15% of your credit score is the length of credit history. If you in the last month opened new cards then this could reduce your score. If you have had a card or loan for a couple years, then that shows you are using credit wisely.
The credit mix represents 10% of your score. So if you have a car loan, a credit card. Some folks use Credit Karma to get an idea of what their score is. You can also each year request a copy of your credit report from https://www.annualcreditreport.com.
If you’d like to have a confidential conversation about your credit regarding buying or refinancing a home, I’d love for my 35 years of experience to work for you.
Dave Porter is a Sales Manager for loanDepot in S Oregon. His NMLS # is 483876 and he can be reached at dporter@loandepot.com or 541-708-4020. loanDepot is an equal opportunity housing lender.
