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FICO Score, Buyers and Sellers Information
What is a FICO score?
Your credit history has been reduced to a three-digit number, and you should know what that number is, especially if you plan on purchasing anything on credit soon.
This three digit number is most commonly nicknamed a FICO score. This is an acronym for Fair Isaac and Co. The folks at FICO will not disclose how these scores are arrived at, however, FICO Claims to use 30 elements to determine risk.
We know for sure that they consider Credit Delinquencies (Have you been late on car payments? Credit Cards? Your Mortgage?) Amount of Outstanding Debt, (Are you 'maxed-out' on your credit cards? Do you have several car loans?) Credit History, (How long have you used credit? Do you have a long standing history of paying your bills?) Credit Inquiries, (Have you applied for 15 new Visa cards this month? Department Stores? Shopping for a car?)
Do I have a good FICO Score? Your score will fall some where between 300 and 900 with most consumers falling somewhere between 500 and 800.
A FICO in the 500's is a very low score, which translates to lenders as high risk. In the 600's is considered a medium score. Your payment history will be closely scrutinized and written explanations regarding the derogatory credit will likely be required prior to issuing any credit. Many mortgage lenders will not lend to someone with a FICO of under 640.
A FICO of 680 or higher is considered a high score, again translating to low risk for the lender and lower costs to the consumer.
There is some very powerful proof of the direct correlation between these numbers and the risks involved. For example, based on FHLMC (Freddie Mac) 1994 loan purchases with repayment performance measured through April of 1996: The clearest illustration of the value of these scores is the fact that loans with FICO's of 619 or less had over 8% foreclosure rate.
So this isn't to say that if you have a low FICO you can't get a loan. In financing a home, you will just pay a bit more for it because there is approximately an 8% chance that you will go into foreclosure. In fact, if you do discover you have a low FICO, you are in esteemed company. Two years ago, Federal Reserve Governor Lawrence Lindsey was denied a Toys R Us credit card for a low FICO.
Can I "fix" my credit? You may want to begin your research by ordering a credit report from ALL THREE of the reporting bureaus below:
Equifax Credit Information Services Trans Union Corporation TRW Information Services
This way, if there are any errors on your report you can get them corrected. Credit bureaus are required to respond to your written request within 30 days. It is important that you know that even cleaning up any discrepancies with the credit bureaus will not immediately raise your FICO. Generally, we are seeing a 60 to 90 day time span for either derogatory or positive marks to significantly impact a FICO.
If you find yourself needing to "repair" your credit, please keep in mind that the Credit Repair Companies" can only correct errors. They cannot erase a poor credit history. If the information shown on your report is accurate, no one can remove it until the 7 to 10 year reporting period is up. It may make more sense (I promise it will be cheaper) for you to work with the bureaus yourself. Simple steps to a successful purchase The first step is to find out what price you can afford to buy. The easiest way to do this is to make an appointment with a loan agent (who works for one lender) or a mortgage broker (an independent agent who arranges loans for many lenders). Ask the agent or broker to prequalify you for a home loan. There is no obligation to apply for a loan with the person who prequalifies you.
The next step is to figure out what you want and need in a house. This should include both the essentials, such as the number of rooms you need, and those nonessentials that you'd like to have. Then, narrow down where you want to live. If you have no idea, ask friends and colleagues at work if they're happy where they live. Ask the lender who prequalified you to recommend the best areas that have houses in your price range. Drive around neighborhoods. Start visiting open houses in the areas you're considering.
When you know where you want to buy. you're ready to choose a real estate agent to help you find the house. Ask colleagues for recommendations. Sellers usually interview several agents before they select one to work with. Buyers should do the same, unless they instantly hit if off with an experienced agent who specializes in the area they want. It's wise not to use an out-of-area agent. If you're looking in several different marketplaces, use one agent for each market.
If you're buying in an area of new housing projects, you may not need an agent. You may have no alternative but to use a member of the sales staff for the housing development where you want to buy. Some new home projects do cooperate with outside agents. If so, your agent will probably have to register you with the sales office.
The search itself may go quickly, or it could take months. This will depend on how aggressive you are. You should look at every house that comes on the market that your agent thinks might work. How long it takes to find a home will also depend on how much inventory there is on the market. Try to be flexible with your search criteria, particularly on the nonessential elements. Be firmer about the essentials on your wish list. When the buyers have satisfied their contingencies, the contingencies are removed from the contract. Then closing documents are prepared and signed by the buyers and sellers. Closing occurs when title to the property transfers from the sellers to the buyers. If a contingency can't be satisfied, the buyers' deposit money is usually returned to them and the contract is canceled.
THE CLOSING: Buyers are often surprised at the time, energy and patience that are required to buy a house. It's a major undertaking, the results of which are immensely gratifying.
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