How good of a credit score do you need to refinance in MN?

Posted: January 15th, 2010 | Author: admin | Filed under: Misc Real Estate | No Comments »

A few years ago, a score of 620 or higher was good enough. That increased to 680 in early 2008. Then it jumped to 720 in April last year and 740 in August.  In the past, any score of 700 or higher would get a double thumbs-up from credit experts. Now, rate adjustments begin kicking in at 740, with every 20-point drop adding another adjustment.
In other words, many people who were taking pride in their credit habits either must pay significantly higher or try to make quick changes to nudge their scores upward.

The road to new scoring

How did we get to this new reality?

The nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, suffered major losses in the market last year and then redefined risk, announcing price adjustments for borrowers with FICO scores below 720. And, in case you were wondering – these fees have nothing to do with your mortgage company or its various products and cannot be negotiated away. It is what it is.

All mortgage bankers, brokers and credit unions must comply with the higher interest rates and delivery changes in all traditional mortgages. Only entities intending to hold the mortgages in their own portfolios can follow their own guidelines.

Worse news may be on the horizon. There are many factors, including proposed legislation and regulation that continue to change the mortgage lending landscape. In the near future, it is more likely that this standard will continue to rise than fall.

Taking action on your score

What can a homeowner who wants to refinance do with a good FICO score that’s not good enough?
Virtually everyone can raise their scores by at least 10 (points) to 20 points, sometimes significantly more in 30 days.  Here’s what to do.

1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual’s three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

3. Decrease the percentage of available credit used. This can be done by paying down balances or increasing credit limits. Ideally, this means keeping balances as close to zero as possible, and definitely below 30 percent of the available credit limit, experts say.

4. Move things around. If one income can be used to qualify for the loan, transfer accounts to “park” the debt in the other party’s name.

5. Get a rapid rescore. It’s the only way to find out fast if an attempt to improve a score was successful. It’s done through your lender and a rescoring company. The process takes about a week, but it can get the loan process back on track. The downside is it costs a few hundred dollars.
In a perfect world, anyone contemplating a refinance or a new mortgage anytime within the next year or so would start working on getting the ideal credit score now.

Got questions?  Just give me a call right now at 651.210.9593.

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