Credit Scores Increasingly Critical in Home Buying

There was a time when your credit score was a factor in your ability to secure a home loan, but it wasn't the most important factor. In the real estate heyday, credit scores were often overlooked as long as income -- stated or actual -- was steady.

That was then, this is now. The Associated Press last week reported that applications for home loans dropped another 3.1 percent, slipping the number of home-loan applications to its lowest level since December 1996.
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This might seem like just another symptom of a slow real estate market. However, this figure comes at a time when the average rate for a 30-year fixed loan dropped to 4.57 percent -- the lowest rate since 1971, when Freddie Mac first began keeping records of loan rates.
So even though rates are at their lowest, consumers still aren't applying for home loans. That's especially bad news.
Given the availability of credit scores, many consumers are aware of where they stand and are electing to stay put, rather than applying for a home loan. For others, a foreclosure or bankruptcy has hampered the possibility of getting a home loan, so they're not trying until their financial situation is firmed up. Even a loan modification or short sale has a negative impact on your credit score.
In these times, with lending regulations as tight as they are, your credit score is your most valuable possession when it comes to securing a home loan. Make sure you are in tune with your credit score if you are considering a home purchase. And if that home purchase is a long way away, do what you can now to clean up your credit rating. It'll go a long way when it's time to apply for a home loan. 


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  • I mentioned it elsewhere, but people are not applying for home loans, despite the low rates, given that even people with good credit (I was told by a car dealer, when I asked if 1.9% financing was available, that I qualified to buy the entire dealership) and told by their mortgage companies a couple of years ago that they had a quick approval guarantee were last year put through the wringer to refinance, and it took 3 months and underwriters at the mortgage company looking at your check registers to get approved. Now, rates have gone down maybe 1% and we are supposed to go through that hell again and pay closing costs?

    As I said, I don't know my score, but I did see my credit report and was told the above. Now, how are people with less than stellar credit going to be able to buy anything?

    Since you are a real estate lawyer, maybe you can explain this. In the old days, the bank would bid in the amount of the judgment at the sheriff's sale. That isn't happening anymore. In my condo association, first a bank bid about 65% of its judgment, but eventually ended up selling the property for about 50%. In a later case, the bank didn't even bid, and the property was sold by the sheriff for about 40% to a company apparently in the flipping business. Is it just that the banks have sold off the mortgages, so screw the holders of the derivatives? (As far as I know, these weren't FHA, although the earliest one mentioned did involve fraudulent appraisals).

  • In reply to jack:

    Jack, you're right about the old days vs. today. Sheriff's sales/auctions are definitely seeing less competitive bids, or even no bids. Not only is it an issue of the derivatives being valueless, but it's just a numbers game these days. With condos especially, after the legal costs of foreclosure and the tax implications of a write-down, there's little incentive for banks/lenders to push these units. So why own it at all, if you're a bank/lender? Again, this is mainly for condos in Chicago. The fact that an investor (flipper) came in on one of the two units in your building is good news, I suppose. They're more likely to be aggressive in the resale of the unit, which means that someone will get it at a good price. But it's also good for the building, since it'll no longer be vacant and someone will be able to help in the association dues/assessments.

  • In reply to mazeklaw:

    Thanks for the explanation.

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