Real Estate Purchases and Credit Scores


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Among the most important requirements a prospective home buyer has to meet in order to qualify for a mortgage loan is a satisfactory credit profile; and when a credit report reveals a less than satisfactory profile, it usually means that the prospective home buyer must take steps to find out why. It is at this time that the credit specialists at North Shore advisory should be consulted.

Here is another informative and insightful guest post from our friends at North Shore demonstrating their depth of knowledge in the field of credit reporting. Enjoy!

Real Estate Purchases & Credit Scores: What Should Bankers, CPA’s, Realtors, and Attorneys Know?

Now that the real estate market is on the rise and interest rates are moving upward it is time to focus on buyers in regards to credit and scores. Although borrowing money has become more costly rates are still very low historically. As the economy crashed high Fico scores (above a 740) became crucial in a purchasers ability to get loan approval or the lowest rates available.



This means buyers with high scores may be able to qualify for a larger mortgage which could equal a better school district, a bigger home, or less cost for the same loan creating more savings. All of this leads to a better quality of life for the buyer.

Here is an example:

Having a 740 plus credit score when purchasing a $960,000 property with 20% down may cost the buyer $4113 a month in mortgage payment. The total price of the loan over 30 years equals $1,480,730.00. Having a score a bit lower than 740 for the same $960,000 property with the same down payment could cost the buyer $4356 a month which may seem like a small difference. Over the life of the loan the full cost is $1,568,117.00 which equals almost $90,000 more.

So what can bankers, realtors, financial planners, CPA’s and attorneys do to help clients prepare for what could be the largest investment of their lifetime?

First asking the right questions and having the right team of experts available to assess the situation is crucial. Here are some of these questions:

  1. When will you be purchasing a property?
  2. Do you know what your credit scores are?
  3. Have you spoken to a mortgage professional or realtor to find out what is needed for preparation on this purchase?
  4. Have you figured out how much of a mortgage you can afford?
  5. Do you know what the taxes are in the location you are looking to buy in?
  6. When the divorce is final will you be purchasing a property?
  7. Maybe I can help you by having you speak to some professionals that I work with who can give you guidance and insight?

This is the age of information and we cannot all be experts in every area but we can have a team available to help us provide what is best for our clients instead of sending them off into the vast wilderness of misinformation and “so called” experts.

These are professionals to be considered as a support team for any CPA, financial planner, realtor, mortgage banker, or attorney:

Mortgage professional-

If you are not a mortgage professional find one with great knowledge and experience that you are very comfortable with. This professional should be available to you and your client offering feedback when purchasing is just a thought. They can help with the preparation and education allowing the buyer to make decisions that can lead to a more graceful and less expensive purchase moving forward.

Getting approval for a loan is more complicated these days although banks want to lend money they also are very careful to price loans right based on the potential risk (credit, income, and value of property). They will request a lot of information to make sure they have the proper documentation on all the requirements for underwriting the loan. A mortgage professional will guide your client and explain what is needed early on making the end result attainable and expectations clear.


Credit Expert-

Having the right credit expert assess what needs to be done to get the buyer into the best credit position for purchasing the property. With the right credit score buyers can save hundreds and thousands of dollars over the life of the loan or make loan approval a possibility. Credit takes time to fix and time to manage properly for the best improvement to scores.

If a buyer cannot be approved for a mortgage due to poor scores it is a waste of time to even begin searching for a property. Credit and the scoring systems are very confusing which could mean what one might think is a minor misstep can turn into a major cost for the buyer or a rejection for a loan.

Real Estate professional-

Having the right real estate professional who can help the buyer define the area, price point, type of property, time involved in finding it, and provide expert negotiation skills plays a huge part in the success of the transaction.

Here is an example of how this can work.

John and Linda are in the midst of a divorce. Larry is John’s divorce attorney. John is giving the house to Linda and at the moment he is renting. Once the divorce is final he will be looking to purchase an apartment in NYC. Larry knows John will have credit issues since some of the bills were not paid on time due to the divorce process.



He also knows that John has been so absorbed emotionally by the divorce that he has done little homework on what is needed for loan approval. As the divorce is winding down to its end Larry starts asking John some questions. He puts John in touch with a mortgage banker, realtor, and us for credit repair.

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The banker finds that John not only needs to get approval for a purchase but he also needs to be taken off the existing mortgage that his ex-wife is responsible for once the divorce is finalized. The banker gets involved right away to help the refinance along since John will not be approved for the size loan he wants if he is still on the mortgage associated with his ex wife’s property.

Since credit is a big factor in the loan approval and cost of financing, we get started right away in working on the credit scores. In John’s case we will need 30-60 days to improve his credit. Now that John knows what he needs to do he also contacts the realtor and discusses what type of property will work for him and when he should start looking based on the timing of the refinance of his existing mortgage and the credit restoration process.

John is grateful to his attorney for guiding him at a time that he could not guide himself and leading him to other professionals that can help him realistically reach his goals.

Reaching out and learning about other professionals’ that play a large part in your clients financial life will lead to great support, knowledge , and value for your customer base. Being proactive in helping is what separates an average professional from a great one! Of course giving more will ultimately lead to happier clients, more referrals, and a more successful business!

Call us with any questions or feedback on credit challenged clients or credit in general!

Making sure credit is analyzed with future financial goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

Great credit brings great opportunity!!” Copyright 2013 • NorthShoreAdvisory.com

North Shore Advisory, Inc. offers credit repair, restoration, monitoring, and education services. We’ve been providing credit education and credit improvement for almost 25 years. For bankers and realtors we can review your clients credit reports and scores to see if we can improve them.

We can help you with your business credit needs as well as any personal credit scores.
Contact Us:
914-524-8300
Email:
info@NorthShoreAdvisory.com


Understanding the Vast Business of Scoring



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Today’s post brought to you by North Shore Advisory. Contact information provided at end of post.

At present and in the long term, future scores and credit reports will continue to play a huge part of approvals for financing and the rate paid, as well as leases, real estate purchases, credit card interest rates, insurance, financial tool offers, and so much more. We are even seeing scores that predict our likelihood to purchase goods and services online and whether we will be worth a company reps time on the phone as a potential customer. Scoring thresholds for approvals and better rate offers on loans have become higher while lenders of all kinds depend on scores to evaluate and curb risk making it essential for all of us to understand who creates these scores, where they are offered, and what the variations are.

Most consumers (and even some professionals) when asked, “What score did you pull?” answer “The credit score…you know….Experian and the other bureaus?” Many assume they are all the same or if the scores come from the bureaus those are the ones everyone uses. It is always important to note that there are many scores and each may have a different range. For example, if you pull a Fico score the range is 300-850 and anything above a 740 is excellent. If you pull a Vantage score the range is 501-990 and it has letter grades A-F. If your Vantage Score is a 740 it does not mean you have excellent credit. This is just one comparison of two scores.

Most consumers think all scores come from the bureaus which is also false. Fico created the first scores for lenders to evaluate risk. When banks found themselves getting sued for discrimination due to underwriters (bank employees) being the sole authority for rejecting applicants, the demand for a score to use as an indicator of risk became prevalent. This was a way for the focus to come off the banks when consumers were rejected. Fico is and always has been a separate company from Experian, Trans Union, and Equifax. The Fico scores used by lenders are scores created by Fico for the purpose of each bureau to sell to lenders. The bureaus use their Fico version score formula for lenders to evaluate the information the bureau compiled on a specific consumer in the form of a number. The lenders pay a fee to the bureau for this service. Equifax and the other bureaus pay Fico a royalty when using the Fico formula created for them. Equifax, Experian, and Trans Union did not create any Fico scores and they are not Fico.

There are many models of the Fico Scores made specifically for Experian, Trans Union, and Equifax and each bureau has separate names for their versions:

Equifax has Beacon 09, 05, & 96 or you might see these same versions displayed on the report as Beacon 5.0 and 9.0 as well. There is also Pinnacle 1.0 & 2.0 which is Equifax Fico next generation.

Trans Union Fico scores are called Fico Risk Score Classic 08, 98, or 04. There is also Fico risk score Next Gen. The old name of the Trans Union Fico score was Empirica.

Experian has the Fico Risk Model 08, V2, V3 and Fico Advanced Risk Score 1.0 & 2.0. Experian use to call its score Fair Isaac Risk Score.

Although some of these scores are outdated they may still be used by banks. You can find the name of the model used to the left, right, or above of the score itself on a merged credit report.

Besides Fico scores, there are hundreds of other scores created by each bureau and sold for many purposes to lenders, insurance companies, credit card companies, landlords, finance companies, telecommunication companies, and much more. There are scores that decipher which consumers might be more likely to default on a mortgage already extended, scores that give insight into which consumers should be offered lower interest plus higher limit credit cards. Some scores even predict those who are more likely to go into strategic default on a mortgage loan. There are even global scores used by large corporations doing business internationally.

Just to give you a glimpse into varied scores here is a list of just a small portion of scores that one of the bureaus offers for sale:

In the Market Models

  • Income Insight
  • TAPS
  • National Risk Model-National Equivalency Score
  • Decision Insight
  • Credit Migration Solutions
  • Collect Score
  • Auto Risk Model
  • Bankruptcy Watch
  • Retail Risk Score

These are 10 of 100’s of scores offered by bureaus to corporations as a tool to help identify consumers and existing customers that will bring more profits as well as those that will deliver potential loss.

When we think of credit scores we think of consumer scores used to evaluate risk for mortgages and those that we as consumers buy online. But understanding the vast business of scoring can help us with the big picture. Since we are all being evaluated and watched through these algorithms it helps to get a clearer view of how they work within the corporations that use them.


Feel free to call us with any questions or feedback on credit challenged clients or credit in general!

Making sure credit is analyzed with future financial goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

“Great credit brings great opportunity!!” Copyright 2012

North Shore Advisory, Inc. offers credit repair, restoration, and education services. We’ve been providing credit education and credit improvement for more than 20 years. For bankers and realtors we can review your clients’ credit reports and scores to see if we can improve them.

We can help you with your business credit needs or personal FICO scores.

Contact Us:
914-524-8300
Email:
Info@NorthshoreAdvisory.com