Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

07/14/2009
What is a necessary credit score to purchase a home?
What is a necessary credit score to purchase a home? There are so many factors to consider. Would you be kind enough as to give me some pointers as what to look for or avoid?
Gail V. Marquet:
expert info »
A credit score is only one factor that can be considered when purchasing a home. When seeking a lender, look for one who will underwrite a mortgage manually based on this plus other factors, such as length of employment, debt-to-income ratio, timely payment of current obligations, salary, down payment, etc.

Connie K. Marmet:
expert info »
You can request a credit report each year. It will show all open credit accounts, requests for credit scores, etc. It shows which accounts are current and which are delinquent or which have been delinquent in the last year. Many reports have a section on what factors help your score and what factors lower it. This will help you manage your credit score. If there is inaccurate information, there is also a process to challenge the information and change your score.

There are many factors. Some ways to raise/maintain your credit score are:
1) Pay all bills on time.
2) Close unused credit accounts.
3) Avoid multiple requests for your credit rating, as this lowers the score. Note: This includes requests when you apply for credit (including by phone) but not for requests from institutions requesting information before mailing all the offers to give you credit cards.
4) Have enough but not too much credit. This is a two-edged sword, but it's the way things are.
5) Manage the limits on your credit accounts. If you have a credit card with a $20,000 limit, with $200 outstanding, the full $20,000 will be considered as outstanding. If the credit card company raises your credit level and you don't need it, call them and have it lowered.
6) Avoid running your credit card up to its limit.

Lenders determine minimum scores for making loans. You may want to check with your bank/lender.
Heather Green:
expert info »
Your best bet will be to visit several different lenders to compare what is
available to you. Different lenders may have different minimums that they
require for credit scores. Be wary of anything that sounds too good to be
true, as often it is. You should consider taking a first-time homebuyer
workshop, which should be free. The course would cover everything that you
need to know when it comes to buying a home, including information about
credit. Good luck.

[Editor’s Note: Further information about how credit influences you ability to buy a home can be found in a brochure entitled It’s Your Credit. Make It Work for You on the Web site of the Mortgage Bankers Association at www.homeloanlearningcenter.com.]
Bettye J. Banks:
expert info »
Lenders have different requirements. With a tightened credit market, however, you can expect it to be a little tougher than in the past few years. You should probably expect the credit score requirements to be in the range of 600-700, depending on the lender, the type of loan, and whether or not you are a first-time homebuyer. The higher your credit score, the better the terms of your loan.

You want to look for an affordable loan with a competitive interest rate. Shop for the best one.

Remember that if you buy a brand new house, it will be taxed at a lower rate than an existing (previously owned) house, so your tax rate will go up next year.

If you are a low-income or first-time buyer, look for programs that offer down payment or closing cost assistance. Please, please, please attend a home ownership readiness class at a HUD-approved housing counseling agency! As you mentioned, you have much to learn and consider. Most agencies have
classes that take 4-8 hours of instruction. Classes usually take place in the evenings or on weekends to make it convenient for you. They are usually free or very low cost.

Go online to www.HUD.GOV or to the National Foundation for Credit Counseling at www.NFCC.org to look for an approved agency near you. You can also call NFCC at 800-388-2227 (cccs).
Michael A. Masiello:
expert info »
First, good luck. Your credit score will determine your [interest] rate and eligibility for a mortgage. Start with realtor/mortgage broker to pre-qualify you for houses you should look at. Be very careful. Don't become house poor. Make sure you can afford the payments under a number of different scenarios.

Editor's Note:
Your credit history is compiled into a credit report by credit reporting agencies.The credit report contains a listing of your debts, how you have paid them (on time or late), any bills that have been turned over to a collection agency, public information such as tax liens and bankruptcies, and a listing of who has requested a copy of your credit report. Negative information can remain in your credit report for seven years, except for bankruptcy, which will remain for 10 years.

The only website authorized to fill orders for your free credit report is www.annualcreditreport.com. Beware of “imposter” websites that use terms or claims of “free credit reports;” some start charging fees to your credit card. To protect yourself, only use the website listed here.