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George Herring

Associate

George Herring Blog

Credit Score and Buying Real Estate in North Texas

6/20/2010

If you are looking to buy real estate in the McKinney, Allen, Plano, Frisco, North Dallas or anywhere in Collin County Texas area, its time to get your credit score in order to determine what you can buy. I ran across an excellent article written by Dave Ramsey about the importance of credit scores. It reinforces my thoughts as to why people get into a pickle by being too conservative or too aggressive with the amount of credit they acquire. It really is a challenge to balance your debt in order to max out your credit score. Enjoy the excellent article, its good reading. I also recommend Dave's site. He has a strong understanding of money management. 

Realtor George Herring | RE/MAX Real Estate Agent



The Truth About Your Credit Score

Can you really live without it?

from daveramsey.com on 11 Jun 2010

The dreaded FICO score. It's that number that's associated with every credit report. We all know about itmost people have onebut what does the credit score really mean?

Like it or not, your credit score is not an indicator of winning financially. 

All it tells you is whether you are good at borrowing money and paying it back.
That's it.


But let's take a deeper look. How is your FICO score determined?

  • 35% of your score is based on your debt history.

  • 30% is based on your debt level.

  • 15% is based on the length of time you've been in debt.

  • 10% is based on new debt.

  • 10% is based on type of debt.

It's the I-Love-Debt Score

Your FICO score is an I-love-debt score, isn't it? Does it factor in your incomeor, even better, your debt-to-income ratio? Nope. Does it factor in your savings accounts, net worthanything other than debt? Absolutely not.

The only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectlywithout adding too much debt or paying too much off. In other words, stay in debt for as long as you can. How ridiculous is that?

Now, if you are on Dave's planpaying off old debt and not opening any new debtthen you'll eventually reach the point of being debt-free. At first, you'll pay off credit cards, car and student loans and things like that. Then, one sweet day, you'll finally knock off that mortgage.

After killing all that debt, your credit score will become "indeterminable." This is great news! By this point in your life, you haven't taken out a loan in years, you've saved a ton of money, and you're paying cash for everything. So you don't need a credit score, anyway, since you don't plan on using credit!

Getting a Mortgage Without a Credit Score

Let's go back a few years, thoughback before you paid off that mortgage. How can you get a mortgage without a credit score in the first place? Isn't this magic number your key to the world of mortgages and homeownership?

Actually, no, it isn't. 

You can get a mortgage without a credit score.

 How so? Manual underwriting.

Not every lender is going to do manual underwritingwhich is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is one lender we recommend for manual underwriting.

Now, this doesn't mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you've got to live up to. Specifically, you must:

  • Put at least 20% down on your home.

  • Choose a 15-year, fixed-rate conventional mortgage.

  • Have a strong employment history and personal income to support the loan.

  • Demonstrate 46 trade lines that span 1824 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

Also, your old credit history has to be in good shape. Even if you have a zero score, the old history is still there and impacts the loan decision. If you have an old history of late or missing payments, then you could have some problems.

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