If you are interested in buying a house, we MUST view your credit.  That’s why there’s a button on the right that says, “Apply Now”.  It allows us to get a copy of your credit report and view it.  Why?  Because Credit Score Requirements for Mortgage Loans are different based upon the program you need, and if we don’t know the scores you have – we don’t know the program you need!

Additionally,  MORTGAGE credit scores are different from your “medical” credit score, your “Car” credit score and even the score you get from Credit Karma (and we like them by the way). This means that if you’ve “seen” your credit score somewhere else, it might not (usually isn’t) the credit score we are working with to help you buy a house!

We had a client who was shopping for a CAR last week, and was told his credit score was 722.  We pulled his credit today, and unfortunately, his MORTGAGE credit scores were 646, 678, and 652. To get him the best mortgage rates, we needed his middle score (652) to be OVER the 660 range.  Was this because he had excessive credit inquiries on his credit report?  We don’t think that’s what caused his credit scores to go down.  He said, “well, no problem, I’m just gonna pay off my credit cards, and close some accounts. ”

No, No, No, No Nooooooooooooo!!!!!!

Making Adjustments To Your Credit Score is NOT a DIY Project!

Truthfully, there is more to a credit score than just making your payments on time or paying off your credit.  In fact paying off all your credit today could be a bad move. We’ve broken this down so many times for folks, I can pretty well just TALK to you about what kind if credit you have and figure out where you can improve your credit scores!

Does this mean you need a “Credit Repair” company to do it for you? NO!

That’s not what I’m saying at all… your credit score is like your thumbprint.  It’s going to be different from your parents scores, it’s going to be different from your spouses scores, it’s unique.  Each home loan program has a unique set of minimum credit score requirements for a mortgage too!

Find out what program you are likely to be interested in, figure out what scores you need – then do what you can to get those scores!

Credit Score Requirements For Mortgage Loans

Minimum Credit Score Requirements FHA Loans

FHA Loans have perhaps the most lenient of minimum credit score requirements.  Technically, we can get mortgage loans approved down to 580, however that is a RARE situation.  We normally need at least a 600 middle credit score to get a loan approved, and that’s assuming we have very strong compensating factors, that caused the rotten scores to begin with.  For instance, you lost a job, it took a few months to find another one, you’ve been at the new job for 6 months to a year, and you are back on your feet.  Most FHA Loans receive approve status if they have 620 scores.

The Bankruptcy and Foreclosure guidelines have low waiting periods with FHA Loans.  As long as you’ve been discharged from a bankruptcy that did not involve real estate at least 2 years ago you can buy another house.  I know the guidelines say that if you have the approval of your Trustee you can buy a house WHILE you are in bankruptcy, but the reality is I’ve never actually seen that scenario get approved.  If you had a foreclosure, or the bankruptcy otherwise involved real estate – then there’s a 3 year waiting period.

Minimum Credit Score Requirements VA Loans

The VA Home Loan program doesn’t technically have a minimum credit score requirement.  HOWEVER, most underwriters look at the FHA Loan as a “guideline.”  So, you generally need at least a 600 credit score if you can prove some extenuating circumstance – or at least a 620 credit score, otherwise.

Bankruptcy and Foreclosure waiting periods are 2 years.  SO 2 years from the date of discharge or the transfer of title on a Foreclosure.

Minimum Credit Score Requirements USDA Loans

USDA Home Loans recently saw a tightening on Guidelines.  To get an “automatic” approval of a USDA Loan right now, you need a 680 middle credit score.  If you have some extenuating circumstances, and you qualify for a manual underwrite, we can submit loans with a 640 middle score or higher.  Because these a no down payment, 100% loans, they are just more conservative underwriting guidelines.

Bankruptcy and Foreclosure waiting periods for USDA Home Loans NC are 3 years.

Minimum Credit Score Requirements NCHFA

If you are applying for a Mortgage Tax Credit or a Down Payment Assistant Grant, then the minimum credit score requirement is 640 – even if you are getting a FHA or VA loan.

Minimum Credit Score Requirements Conventional Loans

Frankly, the minimum credit score requirements for a Conventional loan are lower today than they have been in most of the years I’ve been doing loans (READ:  a long time LOL). Conventional loans now need a middle credit score of 640, AND you can get a gift AND they offer mortgage programs that only require a 3% down payment!  WOW! PLUS – there’s a program now that allows you to buy a house with a family member who will not be living in the house!  SCORE!

If you are trying to get your credit scores a little higher, so that you qualify for one of these programs, there ARE some pieces that you should monitor.  You should be able to raise your credit score, on your own.  Use these tips as a guide, so to speak to building good credit scores, so you can buy a house.

5 Things You Should Know About Credit Scores

Payment History and Credit Scores

Payment History has a 35% impact on your credit score.  Paying debt on time and in full has a positive impact on credit scores, and late payments, judgments and charge-offs have a negative impact. Don’t let NEW “bad stuff’ hit your credit file.  If you are looking for a house, make your payments on time, and if you get a notice from a doctor’s office (for instance) that your account is going “into collection” make arrangements with them.  Pay them $10 a month, but PAY THEM so that you don’t end up with more bad stuff added to your credit report / credit score.

ADDITIONALLY, adding “Good Stuff” to your credit file is IDEAL.  Meaning, if the only thing on your credit file is a bunch of old collections, and the credit score doesn’t see you making any payments on time RIGHT NOW… your score is still going to suck.  You need to be adding on time payments.

The easiest way to do this is with Secured Credit Cards.  We suggest that you have at least 2, and that you charge maybe a tank of gas a month, and pay it down to a $10 balance.  Yes, you will be paying interest, but your scores will go up even more if you have a VERY small balance on the account.

USE those credit cards you already have – don’t just close them.  Use them once a quarter, and yes, then pay the balance off.  These are established accounts, and again the credit score is affected by payment history.  So establish more RECENT on time payment history on your credit score file.

Outstanding Credit Balances and Credit Scores

Outstanding Credit Balances have a 30% impact on your credit score.  Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 25% even wiser. It is never a good idea to close an account; the debt ratio will go up and the number of established credit card lines will decrease.  Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines.

Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry.

Credit History and Credit Scores

Credit History has a 15% impact on your credit scores.  The length of time a particular credit line has been opened is important. A”seasoned” and established credit borrower has a lower credit risk.  This is why for some first time home buyers, we suggest that they be added to a credit card account as an “Authorized User” with a parent or other family member.  This will give them instant points to the credit score, assuming the account has been paid on time, and the credit score balance is well below the maximum credit limit.  This will NOT work with a USDA Home Loan, as they now make us back out Authorized User Accounts and re-calculate the scores.

Type of Credit and Credit Scores

Type of Credit has a 10% impact on Credit Scores.  A mix of auto loans, credit cards and student loans is positive, rather than a concentration in student loans only.  In fact, so many people have student loans on their files, we think it’s best to have a greater mix of other credit, like credit cards, as opposed to just having fixed “installment” loans.

“What’s in Your Wallet” does make a difference!  Credit Cards that are not from the place you are buying from can lower your scores.  What am I talking about?  Well, if you have a Pottery Barn card, a Victoria’s Secret Card, even a Belk’s Card – you probably aren’t making payments to those places… you are paying a Bank that’s issuing that card.  Those cards will not pull up your credit score as fast as a Chase or American Express card, where you are getting the credit directly from the “source.”

Credit Inquiries and Credit Scores

Credit Inquiries have a 10% impact on Credit Scores.  “Hard inquiries” for credit will negatively impact your credit score. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as only 1 inquiry. The maximum number of credit inquiriesthat will reduce the score is 10. Any inquiries beyond that [11+] in a six -month period will have no further impact on the borrower.

Each hard inquiry can cost 2-50 points on a credit score. Make sense? It does to me. File this away in your back pocket. Every time you want to save 10% on the flashing blue light special for signing up for a new card…you may be paying a lot more than that with all of your other credit if your scores drop.

For more information about Minimum Credit Score Requirements for Mortgage Loans in North Carolina, or to understand how these guideline updates are going to affect your ability to qualify – please contact Steve and Eleanor Thorne, 919-649-5058, Connect with us on Google Plus or via Facebook .  We want to help you buy your dream home!