George's Blog

Blog 11.doc

George Duarte, MBA, CMC

“The Real Deal Guy”(SM)

In today’s challenging mortgage lending environment, one factor that is more critical than ever is your credit score. This is the number that is determined by the 3 credit repositories- Trans Union has the Classic Score, Equifax has the Beacon Score, and Experian has the Fair, Isaac (FICO) score. A real estate credit report pulls all three databases, and all three give a score for each borrower. Therefore a husband will have 3 scores and a wife will have her own three scores as well. The middle score of the three is considered “the” credit score. A husband and wife credit scores may be very similar, or quite different.

The credit repositories are the huge databases that all creditors report payment and client histories to. Each repository has a proprietary mathematical algorithmic formula in reviewing someone’s credit history that ultimately spits out a number. The inputs of this number are based on the amount of credit, how long the credit history has been established, the debt balance relative to the credit limit, on time payment history, and many other factors that are in fact secret and obscure.

It is very important to understand that good credit scores are more important now than ever, in this very conservative lending environment. Historically, the minimum credit score necessary for a Fannie Mae “A” paper conforming loan was a 620, but now, if it is less than 680 for either party, husband or wife, then Fannie Mae has a significant points surcharge of as much as 1.75 points. The pricing and underwriting now is all about perceived risk, and lenders and their investors are very credit averse right now, and will be for some time.

Fannie Mae and Freddie Mac have lost billions in the last quarter of 2007, and are looking to make it up by surcharges being imposed. They are now charging a .25 point fee, just because they can, for no particular reason, called “adverse market” conditions. They are charging extra fees for cash out, usually .5 point, and a 1.75 point additional fee for a credit score under 680. These can add up to considerable amounts in determining the pricing of a loan in a purchase or refinance, and can even impact it is worthwhile to refinance or not.

For the best financing terms possible right now, you’ll want to have a 720 or higher credit score, 80% loan to value ratio (either 20% down or 20% equity in the property), and full documentation of your income, and at least 90 days worth of payments in cash reserves.

More on credit scores, tips and tricks in the next installment-

George Duarte, MBA, CMC

The Real Deal Guy (SM)