With housing market improving credit standards are expanding. Many banks have loosened up their guidelines to help the credit challenged borrowers purchase homes. Most companies have reduced their credit standards to having a minimum credit score of 580. Finding the right company for financing can prove to be challenging for consumers.
Credit Scores & Mortgages
There are dozens of credit scoring models, but most lenders use the 301 to 850 range , and anything in the 600 to 649 bracket is considered poor, or subprime. Consumers in the next highest credit tier (650 to 699, aka near prime) enjoyed increased access to home loans over the last several quarters, according to data from Experian-Oliver Wyman Market Intelligence Reports and Experian’s IntelliView tool. (The tool uses the VantageScore model but breaks down borrowers into tiers like prime, near-prime, etc.)
New mortgage regulations went into effect in January, so it remains to be seen how those impact consumers’ access to home loans. Borrowers must meet strict ability-to-repay requirements mandated by the Dodd-Frank Act. Credit scores are only part of the equation.
For example, when Wells Fargo took applications from aspiring homeowners with credit scores of 500, Goyda said a lot of those people didn’t satisfy other criteria required for FHA loans, and this may be the case with applicants in the low-600s. Still, the idea is to open up loan products to consumers who have recently been underserved by the mortgage industry.
“We’ve done what we believe is an appropriate balance of access to credit—especially for first-time and low-income homebuyers—with responsible lending,” Goyda said. With the lending market flowing more toward purchase mortgages, as opposed to refinancing, Goyda said those consumer groups could use more support.
Whether such a shift truly increases credit access, given the other changes to the mortgage application process, remains to be seen.
Increasing Mortgage Access with Caution
Knowing your credit score is always a big part of the homebuying process, however. If your credit score is lower than you’d like it to be, consider allowing yourself time to improve it before filling out mortgage applications documentation needed to get a home loan, but a good credit score can be the gateway to homeownership.
Using a free tool like the http://annualcreditreport.com, you can see two of your credit scores and analyze which behaviors are helping or hurting those scores. If you’re worried about having a good enough credit score to get a home loan, it’s smart to see where you stand now and use that information to help you raise your scores going forward.
☛ How to contact me:
The information from this article was obtained from Christine DiGangi, Credit.com