This is a guest post by Mark Strickland of Equity Loans. He can be reached at mstrickland@equityloans.com.
Mortgage Savings Begins With FICO Score
How to save the most money when financing your home? One simple answer is to obtain the lowest interest rate. Today, most lenders offer very similar, competitive rates to qualify for a loan. Several factors determine the rate offered. These include your FICO score, property location, type of property, the loan program, and the term length of your loan. For the purposes of this writing, we will focus on just a few tips on the one that will provide the largest savings potential. Your FICO score. This is where it all begins. Your FICO score determines your qualification for each loan program, and its interest rate – thus, the most achievable savings over the term of your loan. Those low advertised interest rates you see carry qualifying terms. This means 600 scores are usually not getting the same rate as those with 800 scores.
Don’t pay for credit repair: Credit repair services can be costly. They can also take several weeks, even months to show results because all they basically do is mail dispute letters to the credit bureaus and creditors. Lenders and Loan Originators licensed with the Nationwide Mortgage Licensing System and Registry (NMLS) are qualified, educated, and should be willing to assist you with the various mortgage programs and terms available to you – and to assist you on the options and benefits of raising your scores –FREE. With the proper documentation, they can usually have results and improved scores within a few days. If your lender is not knowledgeable in how to increase your scores, or willing to take the time to work with you – find and contact one that is.
Increase even good scores for better rate: After meeting the lender’s minimum qualifying score requirement for each offered program, there are tiers that determine the rate, along with other factors. Most tiers are in 20 point increments, i.e. 600, 620, 640, 660, 680, 700, 720, 740. etc. So, if you have a qualifying FICO score of 680, you may obtain a lower interest rate if you could improve your qualifying score to 720.
Pay Revolving /Credit Card Accounts before the due by date: Revolving debts must be paid and posted to the account by the due by date on the statement. If posted after, the servicer will most likely report you as 30 days late to the credit bureaus. This will drop your scores dramatically. Most servicers report to the bureaus 3-5 days after your due by date each month. Call your servicer and ask them their reporting date(s) to the bureaus on your account.
Pay or keep your Revolving/ Credit Card balances low: Although there’s no magic number published by the credit bureaus, you generally lose points if your balances rise above 30% of your credit limit. The higher your balance in relation to your limit – the more points you may lose. If your balance is over your credit limit, you will lose even more points. The month before you apply for a mortgage, pay your credit card balances down to $10.00 – then apply after the date(s) you have established that your servicer has reported to the bureaus. You should be pleased with the increase in your FICO scores.
Never CLOSE your current Credit Card account(s): This is probably the worst error in scoring advise consumers are given – and I see it time and time again – “pay off your credit cards, close them, and tear them up…”. The theory is that this will reduce your debt calculations to the bureaus and increase your scores. Not entirely true. What closing your account will do is take away from your overall available credit calculation and actually LOWER your FICO scores- often significantly. Don’t confuse paying down or even paying off credit card balances with closing the account. NOTE: Again, for whatever reason, higher points have been given by the bureau’s when leaving a small balance of $10.00 – as opposed to paying the balance down to $0.00. But leave the account open. Remember – the higher your credit limit compared to your lower balance – usually receives the maximum FICO scoring for that account.
These are just a few of the many options available to you to increase and maintain your FICO scores. Discuss more credit issues and additional savings options with a NMLS licensed Loan Originator to obtain the best available interest rate for the mortgage program that best suits your financing needs.
Mark E. Strickland
NMLS #68606
Mortgage Loan Originator
mstrickland@equityloans.com
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