Today, credit scores plays a big role in determining whether or not your mortgage loan is approved and at what interest rate. Obtaining a mortgage loan at an interest rate just one point less results in a savings of about $5,000 on the average 15 year mortgage, and significantly more on a 30 year mortgage (about $50,000).
Why do lenders use your credit score in their lending decisions? Because they discovered that there is a direct correlation between your credit score and the odds of your becoming delinquent on your monthly mortgage payments. Consider the following statistics the mortgage industry has compiled:
Your Odds of Becoming 90 Days Delinquent are
576 to 1
288 to 1
144 to 1
72 to 1
36 to 1
18 to 1
9 to 1
4 to 1
2 to 1
As the above table illustrates, those with credit scores below 630 are not a very good risk, so they will obtain a mortgage at a significantly higher interest rate and this will add anywhere from $50 to about $250 to their monthy mortgage payment and add thousands to the price of the home.
If your score is 660 or above, you can get a mortgage loan fairly easily since you are a pretty good risk. As stated above, the higher your score the lower your interest rate, so your goal shouldn’t be to obtain a credit score of 660; it should be to achieve a credit score of at least 700. Some lenders will reward you if your credit score is higher than 725, by lowering your interest rate by about 1/4th of a percent. If it is between 700 and 724, it will be lowered by 1/8th of a percent.
Does an interest point or two make such a big difference in the price of the house? You bet it does! It means saving thousands in finance charges and a lower monthly payment. For example, paying an interest rate just two points higher means paying an additional $200 each month on your house payment on the typical $150,000, 30-year mortgage loan. That’s at least $72,000 more you’re going to pay for your house!
There are steps you can take to raise your credit score or overcome a low credit score:
(1) Offer a larger down payment so that you aren’t borrowing so much money
(2) Lower your debt-to-income ratio by paying off as much debt as you possibly can before applying for a mortgage loan in order to increase your credit score
(3) Don’t buy a car just before applying for a mortgage loan as it lowers your credit score
For a Kentucky FHA Purchase Loan, we can go down to a 620 credit score with the minimum down payment of 3.5%. No bankruptcies or foreclosures in the last 2 years.
FHA Manual Underwriting
The minimum FICO for FHA Manual Underwrites is being lowered to 620
Joel Lobb
Senior Loan Officer
Senior Loan Officer
(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
phone: (502) 905-3708
Fax: (502) 327-9119
Company ID #1364 | MB73346
ated Articles
- Kentucky FHA Mortgage Guideline Changes April, 2013 (louisvillemortgageguide.com)
- Louisville Kentucky Mortgage Rates (kentuckyusdaloan.com)
- Unintended consequences? (itv.com)
- Credit Score Need a Tweak? Here’s How (hispanicbusiness.com)
- Is subprime heating up again? (bankrate.com)
Kentucky FHA Mortgage Lender 