By Marc Guzman
We all know how important your credit score is when it comes to borrowing money for credit cards, auto loans and home loans. But how many of us really take the time to educate our clients on the benefits of preparing their credit score before they buy a home?
Buying a home can be very exciting and a daunting process. Home buyers do a lot from preparing paperwork for the loan officer, research and viewing properties with their REALTOR®, reviewing disclosures and signing paperwork, to saving enough money for the down payment. But in working with many buyers, both first-time and experienced, it is amazing to me how many buyers overlook the importance of their credit score. Many buyers think saving the down payment is sufficient as long as their credit score is above 620. You know that question, “What is the minimum credit score I need to qualify?”
But the truth of it all is, no matter what the credit score, it is important to begin working on improvements 6 months to 1 year before buying a house; longer in other cases. It takes some time to significantly increase the score. You may also want to partner with a company that specializes in credit counseling. Now why place so much emphasis on improving an already qualifying score?
- Average score for buyers using conventional financing is 760
- Average score for buyers using conventional financing in which the loans were purchase by Fannie Mae or Freddie Mac was 755
- Only 1 percent of loans were offered to buyer with less than 620 credit score
- 75 percent of loans were offered to buyers with credit score of 740 or higher
- The difference between a 720 and 620 credit score could be 140 basis points resulting in a difference of $253/month in your payment on a $300k mortgage; HUGE savings.
It is very important as real estate professionals to educate ourselves on how credit scoring works and how we can help our clients. Yes, the credit score rules and algorithms used by the credit agencies are “secret” but reputable and professional credit agencies can help. And when combined with a buying strategy, you will be prepared to help your clients purchase their dream home while maximizing their savings. It also gives you an excuse to follow-up monthly with those clients quite who are not ready to buy right now.
Marc Guzman is a licensed broker and the technology manager at Security Pacific Real Estate in Northern California. Visit his site on www.WestCountyBlog.com or follow at www.facebook.com/marcguzmanhomes.