When you hear about rates in the news or at the watercooler, it’s important to know they are usually referring to the conforming conventional Fannie Mae or Freddie Mac rate.  Rates for FHA, VA, high balance conventional, bank statement loans and Jumbo loans aren’t usually the rates relayed when We generally talk about “rates” so it’s important to know what type of loan you are looking to qualify for as that rate could be different than what is being publicized as where rates stand at a given moment.  It is also important to know “that rate” assumes you have a perfect credit score which is 780 or above.   It also takes into consideration factors such as loan amount and loan to value.  For example, a loan with a loan to value of 70% should have a better rate than one with a 95% loan to value.

A quick aside… Not all lenders will discount the rate with higher loan amounts, but I do.  Essentially the banks pay based on a percentage of the loan amount and while most lenders just keep all of that, I pass it along to my clients.

What I wanted to relay this week in this section is that your rate will depend on a lot of factors, one of the main ones being your credit score.  Your credit score can determine which loan program is the most beneficial for you, and it can affect your rate within that program, so it’s vital that you do everything in your power to increase your credit score and keep it there once you get it to the level required to attain the type of financing you need/want.

Increasing your credit score can take time.  The basics are paying your bills on time, generating positive credit (if you have some previous negative credit, this will take some time), keeping your balances low compared to your credit limits (40% or below of the limit).  Once you get your score to the desired level, it’s vital that you keep it there, by staying on the track that got you there.   Once you are there, you should be able to tread water by paying your bills on time, keeping balances low, and not opening new accounts.  The key difference between raising your score and keeping it there is that you may have had to open some new accounts to generate positive credit to combat some negative credit or maybe not having a credit history at all.  So, remember, once you get it there, don’t open new accounts if you plan to buy a house soon. New accounts will drop your score initially and take time to season, so if you need to open new accounts, do it sooner than later and preferably a year before you plan to need your credit for a major purchase like a house.

A lot of buyers are waiting for rates and home prices to come down and this could take some time, so it’s vital to not make any missteps while you are in that limbo zone.   I have seen a few missed credit card payments and some high balances drop a buyers score from the 800s to the 500s, so it’s vital that you stay vigilant about paying your bills, and keeping those balances low while you wait for the opportunity to buy a home to arise.   Don’t lose your focus.  A couple of mistakes along the way could drastically change the loan you qualify for and end up costing you tens of thousands of dollars.   You can always refinance once you get your score back to where it was, but it takes time and money to get you there and it’s always better to start your home ownership journey with the best possible rate.   Stay focused. You don’t need to buy a house now, but if you plan to soon, you must make sure your qualifications stay in place.   With a recession looming and consumer credit debt reaching generational high levels, a missed payment here or there can do real damage to your ability to finance a house when you do decide to pull that trigger.

If you have questions about your current credit situation and want some advice on how to improve it or maintain it, I am here to help.   Most credit advisors charge for this stuff but It’s all part of my service, so feel free to take advantage of it.  I hope this was helpful.