HIGHLIGHTS
- In 2014, consumers with FICO credit scores higher than 660 made up a large portion of mortgage borrowers
- Home loan program available with a minimum FICO credit score of 550
The home buying process can be intimidating and for first time home buyers, a less than perfect credit history can be one of the biggest obstacles to overcome. Mortgage lending requirements are challenging, even as the economy continues to recover from the last housing crisis and recession. In 2014, consumers with a FICO credit score higher than 660 made up an increasingly large portion of mortgage borrowers. Recent data is now showing significant racial gaps in mortgage lending. According to the Urban Institute “African American and Hispanic households have been disproportionately affected by overly tight mortgage lending standards—and they constitute a surprisingly large share of the 4 million loans that were not originated due to tight credit standards from 2009 to 2013.” Fortunately, there are home lending programs available that can help this “underserved” market.
WHAT IS A FICO CREDIT SCORE?
According to Investopedia, “A FICO score is a type of credit score created by the Fair Isaac Corporation. Lenders use borrowers’ FICO scores along with other details on borrowers’ credit reports to assess credit risk and determine whether to extend credit. FICO scores take into account various factors in five areas to determine credit worthiness: payment history, current level of indebtedness, types of credit used, length of credit history and new credit accounts.” Generally speaking, the higher your FICO score, the better your chances are for obtaining a mortgage and receiving the best mortgage interest rates available. Overall you can expect to pay less for your loan compared to a person with a lower FICO score.
550 FICO CREDIT SCORE MORTGAGE LENDING OPTION
In 2015, mortgage loan options became available for buyers with a minimum FICO score of 550 on government programs like FHA, VA and USDA. As more millennials and first-time buyers look to purchase a home, they will need access to loan programs with lower lending requirements, especially in the disproportionately affected demographics. Educating yourself on how to reach your credit goals is the first step. Your Realtor professional can also be a good resource on the home buying process and mortgage lending options such as these.
Alex Vaughn, MBA
Alex Vaughn is a Short and Foreclosure Certified Realtor licensed with Carrington Real Estate Services (US), LLC in Florida and Michigan, serving the Miami, Fort Lauderdale, Florida and Metro Detroit, Michigan areas. Alex also holds a Master’s in Business Administration from Florida International University. You can reach Alex at Twitter @iAmDAlex.