PARAMOUNT MORTGAGE - LENDER'S BLOG

An extraordinary 18 percent of Realtors have experienced contract failures in the last few months reports Walter Malony, Senior Public Affairs Specialist with the National Association of Realtors (NAR), “which are double the levels of a year earlier.”

These contract cancellations are caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other credit or income problems affecting borrowers.

Maloney reports “in many cases, understanding how the credit system works would help buyers avoid problems,” which was the main theme for a recent presentation “Cracking the Credit Code” at NAR’s 2011 Conference & Expo in Anaheim, CA.

Chandra Hall, a Realtor, instructor and presenter at the Anaheim Expo wants Realtors to know a homebuyer’s “credit score is the key to his or her personal economic health. It’s imperative to know how credit scoring works and how to achieve the highest possible score.”

Credit scores are derived from payment histories acquired from credit card companies, home loans, car loans, and department store credit cards. But many borrowers do not realize that information also is obtained from court records including bankruptcy filings, tax liens and judgments which can negatively affect a score.

NAR analysis shows the average credit score for home buyers using conventional mortgages rose to 760 in 2010 from 717 in 2007. A score of 640 is considered to be a minimum score to get a mortgage, but varies among lenders.

Weighted average FICO scores for conventional loans purchased by Fannie Mae and Freddie Mac eased a bit in the second quarter of 2011, declining to 755, but remain well above historic norms.

Less than one percent of loans were offered to buyers with credit scores of 620 or below, and 70 percent of loans were provided to borrowers with credit scores of 740 or higher.

Twenty-five percent of Americans have credit scores below 599 which is almost double the level of two years ago.

Homeowners who have experienced a foreclosure on a conventional loan can expect to have that negative event affect their credit score for at least seven years, while a foreclosure on an FHA loan can have a three-year impact.

Utilizing a mortgage banker early in the home buying process can help educate buyers about activities that improve their credit score, such as paying bills on time. They can also learn what actions to avoid, including taking on new sources of debt like buying a car or getting a new credit card before applying for a mortgage.

Hall says, “If you’re planning to apply for a mortgage, don’t close an account within six to 12 months in advance. Keep older accounts, even if they’re unused, because the average age of credit accounts is a factor in scoring performance over time.”