Mortgage Process Shifts DRASTICALLY – Here’s What’s New
(ConservativeInsider.org) – Failing to qualify for a mortgage can be crushing and frustrating. Renting has expensive and strict mortgage rules that involve FICO scores, which are a type of credit score – a three-digit number based on the information in your credit reports that helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how many months you have to repay, and how much it will cost, or the interest rate on the loan.
This means if you don’t have a good credit history, you may find it difficult to qualify for a mortgage, even if you have proof that you can handle the mortgage payments, like handling bill payments and rent. Especially when rent is often higher than a mortgage payment, it can be infuriating to be denied for a loan. This often contributes to locking out millions of Americans from home ownership opportunities, even when they can afford it.
However, going forward, your rent will factor into mortgage decisions, alongside your credit score, utilities, and phone bill. For many who have a short credit history or bad credit, inclusion of regular rent payment is a major boon.
What Is a FICO Score?
FICO comes from “Fair Isaac Corporation.” This company created a credit score calculation method based on information they could get from agencies who report credit. While there are other models, FICO is the standard for many banks, and many lenders and landlords make decisions based upon an applicant’s FICO score. Whether you are seeking a credit card or a loan, your score will matter.
FICO scores are drawn from three credit bureaus: TransUnion, Equifax, and Experian.
Note that if you use a source like Credit Karma to check your score, your report is reliable, but there could be a delay with what your lending partner sees and what you see, or they may only use the scores from one of the credit bureaus.
What Changes Can You Expect?
Your FICO score is likely to change due to mandatory inclusion of your VantageScore when making mortgage lending decisions.
Your VantageScore includes reporting information about a loan applicant’s utility, phone, and rent payments. This means that if you have a history of making rent payments on time, inclusion of this score is weighing the scale in your favor.
Who Will Benefit Most from New FICO Changes?
FICO changes are likely to benefit Americans across the board, especially those who pay their rent and utility bills on time. However, African-American households are the most likely to see immediate benefits due to a long history of housing discrimination, employment and wage gaps, and redlining.
The actual changes will happen slowly as part of a longer multi-year effort. That means you may not personally benefit right away, but it is likely you will be in a stronger position over the next few years to purchase property because of how these changes ease or eliminate financial disadvantages.
If you’d like to get an idea of where you currently stand financially, check out:
- VantageScore: the new type of report that will be included in FICO.
- Credit Karma: a free website that allows you to monitor your scores (note: this site is advertising based, so they may try to sell you credit cards you may or may not need or want).
- Federal Housing Financial Agency (FHFA): government organization responsible for this change; also a good source of information on the housing market.
Keep informed about this and other changes before attempting to prequalify for a loan. As always, make sure you know where your credit score stands before you go into any major financial negotiation.
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