What's The Minimum Credit Score Needed To Buy A House?
With Tim Beyers, Mortgage Analyst with American Financing
Interest Rates and Their Effect on Mortgage Rates
Even though they had all but telegraphed their decision six months earlier, when the Federal Reserve nudged their benchmark rate up by a quarter of a percent at the end of 2016, it prompted an immediate torrent of news stories and blog posts about the effect this would have on mortgage lending rates and the housing market.
While the consensus expectation is that US Treasury 10-year notes and 30-year bonds (which are seen as determining rates for mortgages) will inch up in lockstep with the benchmark rate, there's more to the story.\xa0 Steve's guest Tim Beyers, a Mortgage Analyst with American Financing, explains that there are two types of mortgage rates: fixed and variable.\xa0 Fixed rate mortgages are unaffected by changes in Federal rates, but variable rate mortgages usually float based on what the current 10-year note is yielding.\xa0 Adjustable rate mortgages (ARMs) are the most common variable rate loans and are most directly affected by changes in interest rates.\xa0 As some ARMs offer a \u201cteaser\u201d rate for 7 years, others reset after a year. The devil here is in the details.
Both fixed or variable rate loans can be refinanced at a new fixed rate if the mortgage holder meets certain financial criteria.\xa0 This basic premise holds true for new mortgages as well\u2014the borrower's financial situation plays into the rates at which banks are willing to lend to the buyer.\xa0 In Beyers's opinion, the recent 0.25% increase in Fed \u201cfunds rate\u201d and an additional 0.25% rate increase\u2014which the Federal Reserve has indicated it will make in 2017\u2014will not affect home buyers very much.\xa0 It will affect 10-year and 30-year rates, which again will go up in proportion to the benchmark rate, and will also fluctuate based on longer-term expectations of the economy as a whole.\xa0 Steve and Tim agree that while we have no influence whatsoever on interest rates set by the Federal Reserve, we can control to some real extent the mortgage rates we are offered by improving our financial position vis-a-vis credit scores, debt, and the size of our down payment.
Credit Score Needed to Buy a House
Whether you're considering refinancing a mortgage or you're buying a home, it's critical to understand the effect of your credit score on mortgage rates.\xa0 Lenders will undoubtedly zero in on this number\u2014 also called a FICO score\u2014as it is seen as the single most important factor in evaluating your ability to pay back a loan.\xa0 The interest rates you will be offered will vary depending on your credit score.\xa0 Credit scores typically run a scale from 500 to 850, and a score north of 740 is going to put you in a strong position to receive good rates. Obtaining credit score reports from the three major agencies can take time, but the law requires that agencies provide this information to you once a year at no cost.\xa0 The website to get these reports is annualcreditreport.com.\xa0 In addition to the headline FICO score, the agency reports will provide details about loans, revolving lines of credit (credit cards) and bankruptcies.\xa0 If you find outdated or wrong information in these reports, there is a process to correct it which involves sending a letter and supporting documentation to the agency.\xa0 This should take about 30 days.\xa0 Also noteworthy is that after seven years, delinquent loans and bankruptcies are automatically deleted from the report.
Mortgage Hidden Costs
Steve remarks that many home buyers fail to grasp the full costs of buying a home including, of course, the mortgage itself, but also \u201chidden expenses\u201d related to repairs and maintenance among other items: fixing a roof or air conditioner, spraying for termite, etc.\xa0 Tim recommends that home buyers first use a mortga...