Atlanta Real Estate Blog

What Every Buyer Should Know

You may be hearing that lenders are increasingly particular about which borrowers are eligible for mortgages.  Here is what goes into your credit score and what it means to your loan.

Most lenders use a tool called the FICO score, developed by Fair Isaac Corp.  The FICO score goes from 300 to 850.  It measures the credit risk to the lender in making a loan to the borrower.

Get the FICO score, you're done!  Sounds easy,right?  Surprise - you have more than one FICO score.  Buyers planning to purchase a home actually have three credit scores: one for each of the three major national credit bureaus, Experian, TransUnion, and Equifax.  All three scores can be different, based upon which of your creditors reports to that particular credit bureau. The "final score" - the one that lenders use - is the credit score in the middle.

Each credit score is based on information that each credit bureau keeps on its own credit files.  Because credit bureaus do not share their data with one another, the three FICO scores may differ, sometimes by as much as 100 points.  This means that Experian might give you a 580 score,TransUnion might give you a 650, and Equifax might give you  a 700.  The lender chooses the "middle" credit score (not the average)  => 650.

FICO scores are derived from:

• Payment history: 35 percent

• Amounts owed: 30 percent

• Length of credit history: 15 percent

• New credit: 10 percent

• Types of credit used: 10 percent

While a 580 credit score might qualify you for a loan under FHA requirements, you may need a credit score over 620 to quality for a more favorable conventional loan.  Borrowers with credit scores over 720 receive preferred loans at the most desirable rates and terms.

If you are planning to buy a home, take the initiative and pre-qualify with a lender in advance.  That way, you'll find out in advance how much home you can afford and what the monthly payment will be. 

If you need help in finding a lender with the loan program to best fit your unique needs, call me at 404-384-2274.  I know several excellent ones.