Credit and Mortgage Credit Changing

The credit environment has changed drastically and banks are tightening their belts.  While just last year a 680 to 700 FICO scores was considered great scores, now a good FICO score is considered around the mid 700’s.  In other words, credit scores 50 to 100 points greater than last year have a better chance of getting the best credit rates.  

Although some loans are still available to those with a 620 credit score, they are fewer and far between, and borrowers will pay much higher interest rates on mortgage loans with these scores.  It won’t be unusual for borrowers with these scores to see 10% or more interest rates, whereas, those with the better credit scores will see around 5%.  

Moreover, many lenders are requiring much more money down.  Gone may be the times of -0- down, and back are the requirements of 10 to 20% down payments on homes.  Lower amounts however will still be available with FHA and VA financing.   

Some numerical changes to consider:  

Old Credit                                            New Credit  

Best credit score: 680 and up                          720 and up

Down Payment: 0 to 10%                                10 to 20%

Documentation: Minimal                                 Maximum

Debt-to Income ratios:  55 to 60%                  Less than 41% 

Just one example, the maximum ratio now to qualify for a VA Loan is 41%.  

The credit environment is changing drastically, so it is best to monitor and control debt and old spending habits. Know your credit scores and make the appropriate changes, debt pay-offs, and adjustments well before applying for a mortgage loan. Some institutions offer programs are available to help with credit scoring.  Ask your bank, lender or Realtor about these programs.

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