Navigating credit scores and the right time to buy
Q: We spoke with a real estate broker about buying a local home, and as a condition of working with him, we were required to sit down with a mortgage loan officer to see what we can really afford. Although we are a two-income household, our credit scores averaged 680 — not enough to excite many lenders. We think property
prices will generally rise, so we still want to buy. How do we crack the mortgage system?
A: You’ll likely qualify for a mortgage with a 680 score. The average FICO- brand credit score hit 711 in October, according to the company. A score of 680 is generally regarded as “good” by lenders. They can work with you, especially if you want VA, FHA, USDA financing or a conforming loan with 3% down.
However, you may be running into a curious problem. Your score is not somehow disqualifying; it’s just that a lot of borrowers have higher scores. Ellie Mae reports that in September, the typical FICO- brand score for a successful borrower was 753. That’s an enormously- high score by traditional standards. For instance, Ellie Mae also reports that a typical score was 738 in January and 728 in May 2019.
Those buying homes today are not among the unemployed. They have income but with the pandemic fewer opportunities to spend. The result is a better financial profile. Think about the $ 1,200 government checks distributed early in 2020. According to the Federal Reserve Bank of New York, 34.5% of the money was used to pay down debts, while 36.4% was put in savings. Less debt can mean better credit scores, while more savings means more borrower liquidity, something lenders very much like.
Despite the pandemic, the real estate market is generally strong across the country. You can see evidence of this in the form of rising prices. The National Association of Realtors ( NAR) said that the typical September purchase price was $ 311,800, a record and an eye- popping 14.8% higher than a year ago.
However, we’re also at a moment of great uncertainty. The real estate market is strong now, but what about 2021 and the year after? How can prices continue to rise in the face of massive unemployment? What happens when today’s eviction and foreclosure moratoriums end?
These are important questions for lenders because mortgages are mainly secured by home values. If values stall or go down, then mortgage loans are suddenly riskier, something lenders want to avoid.
The bottom line is that a 680 credit score is very workable for lenders. You might not get the best mortgage rates, but interest levels are at or near historic lows (as this is written). Very good financing is available, especially in comparison with past rates.