If you’re looking to buy a home and have been pre-approved for financing, you’re probably in the clear for financing, barring anything unexpected. For many Americans, however, getting pre-approval, let alone being approved for financing, is out of reach because of insufficient credit history, too-low credit scores, or blemishes on credit reports. These past or present snafus can result from late or missed payments (payment history makes up 35 per cent of FICO score), hard credit inquiries, or having a high debt-to-income ratio (considered 40 per cent or above).
In an effort to make financing available to more individuals—but in a responsible way—the National Association of Realtors (NAR) has called on federal regulators and the credit and lending communities to reevaluate how credit is assessed. With a goal to make lending an option for more Americans—qualified buyers who are good credit risks—NAR hopes to boost the number of homebuyers shopping the marketplace.
The effort is, in part, to level the playing field. According to article on Realtor.org,
“Work by the Harvard University Joint Center for Housing Studies indicates that borrowers with lower incomes as well as minorities face higher rejection rates on their mortgage applications. NAR analysis of mortgage data from 2007 to 2013 indicates that the share of rejected loans due to credit scores was significantly higher for African Americans and American Indians.”
To determine this kind of alternative credit score, less emphasis is placed on circumstantial issues, like unpaid medical bills, as well as eliminating the effect of missed payments on debts that have subsequently been paid off. In addition, some systems incorporate payments for public utilities and rental housing. Using this info gives a more accurate snapshot of those who may not have a credit score due to lack of use.
While FHA is still in the process of determining what this system looks like, some lenders have already instituted the use of alternative credit models. Contact HomesMSP to learn more about how alternative credit and other types of programs may help you achieve home ownership sooner—perhaps much sooner—than you thought possible!
Angela Anderson, 612-396-3654
Realtor, Results Support Services: EMAIL — BIO
Licensed Associate Working with Sharlene Hensrud of RE/MAX Results, and HomesMSP — Sharlene, John, Angela
Related Articles:
- How to Raise Your Credit Score
- HomesMSP Blog Topic: Financing
- Why Does my Lender Care About Credit Inquiries?
