A $3,127 penalty for a two and a half year old unpaid bill in the amount of $12.
Sounds crazy right? So thought our client “Jim”! “Jim” is one of the most highly qualified clients I have ever provided a loan for in fact, he is a true millionaire. However, when we pulled his credit, there it was – a $12 medical collection from over 2 years ago. You see, that old collection was the only negative item on his credit and it dropped his credit score to a 708 – a very good credit score, but not perfect.
Fannie Mae and Freddie Mac (the ultimate lender for almost all mortgages closed in the U.S.) both charge three quarters of a point for a credit score below 720 in order to get the best interest rate available. Because “Jim’s” loan was for $417,000 that three quarter point equaled $3,127! “Jim” chose to accept a slightly higher interest rate instead of paying the upfront cost.
Gone are the days that a person can wake up on a Saturday morning and decide to buy a home. You’ve got to plan in advance now to be sure your “ducks are in a row” or things will get expensive, quickly! I’ve been in this business for 8 years now and I’ve never seen the type of environment we’re currently in. Certainly the biggest change revolves around your credit score. Lenders, even Fannie Mae and Freddie Mac are viewing your FICO score as your “character in a number”.
Whether you like it or not, your next loan’s interest rate is going to be dramatically affected by the smallest smudge in your credit history! Planning in advance, including knowing what your credit report contains can help you avoid a lot of pain down the road. There are changes coming to the credit scoring model, which I’ll address in a future newsletter, however the changes aren’t here yet. Even if you think your credit is perfect, you need to see it to know for sure!
If you’d like to know more about credit scoring please visit my website and click on the “Great Credit Scores” article in the “Industry News” section of our website. In addition, I teach classes regarding credit scoring in the local high schools and periodically around the community. To find out about my next class please visit the “Upcoming Classes” section of the website www.HOFEInstitute.org
If I can help you or your friends with credit scoring methodology, or certainly a mortgage loan please don’t hesitate to call me. I can even send you a copy of your credit report. It’s not the “free” kind that doesn’t give you a realistic score and subjects you to a ton of marketing material. It’s the real deal; the actual report we would use.
Through the education of our community and our clients we’re “Providing A Professional Approach to Mortgage Finance”! How can we help you?
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