What's The Minimum Credit Score Needed To Buy A House?
With Tim Beyers, Mortgage Analyst with American Financing Interest Rates and Their Effect on Mortgage Rates Even though they had all but telegraphed their decision six months earlier, when the Federal Reserve nudged their benchmark rate up by a...
Summary
With Tim Beyers, Mortgage Analyst with American FinancingInterest Rates and Their Effect on Mortgage RatesEven though they had all but telegraphed their decision six months earlier, when the Federal Reserve nudged their benchmark rate up by a quarter of a percent at the end of 2016, it prompted an immediate torrent of news stories and blog posts about the effect this would have on mortgage lending rates and the housing market.While the consensus expectation is that US Treasury 10-year notes and 30-year bonds (which are seen as determining rates for mortgages) will inch up in lockstep with the benchmark rate, there's more to the story. Steve's guest Tim Beyers, a Mortgage Analyst with American Financing, explains that there are two types of mortgage rates: fixed and variable. Fixed rate mortgages are unaffected by changes in Federal rates, but variable rate mortgages usually float based on what the current 10-year note is yielding. Adjustable rate mortgages (ARMs) are the most common variable rate loans and are most directly affected by changes in interest rates. As some ARMs offer a “teaser” rate for 7 years, others reset after a year. The devil here is in the details.Both fixed or variable rate loans can be refinanced at a new fixed rate if the mortgage holder meets certain financial criteria. This basic premise holds true for new mortgages as well—the borrower's financial situation plays into the rates at which banks are willing to lend to the buyer. In Beyers's opinion, the recent 0.25% increase in Fed “funds rate” and an additional 0.25% rate increase—which the Federal Reserve has indicated it will make in 2017—will not affect home buyers very much. It will affect 10-year and 30-year rates, which again will go up in proportion to the benchmark rate, and will also fluctuate based on longer-term expectations of the economy as a whole. Steve and Tim agree that while we have no influence whatsoever on interest rates set by the Federal Reserve, we can control to some real extent the mortgage rates we are offered by improving our financial position vis-a-vis credit scores, debt, and the size of our down payment.Credit Score Needed to Buy a HouseWhether you're considering refinancing a mortgage or you're buying a home, it's critical to understand the effect of your credit score on mortgage rates. Lenders will undoubtedly zero in on this number— also called a FICO score—as it is seen as the single most important factor in evaluating your ability to pay back a loan. The interest rates you will be offered will vary depending on your credit score. Credit scores typically run a scale from 500 to 850, and a score north of 740 is going to put you in a strong position to receive good rates. Obtaining credit score reports from the three major agencies can take time, but the law requires that agencies provide this information to you once a year at no cost. The website to get these reports is annualcreditreport.com. In addition to the headline FICO score, the agency reports will provide details about loans, revolving lines of credit (credit cards) and bankruptcies. If you find outdated or wrong information in these reports, there is a process to correct it which involves sending a letter and supporting documentation to the agency. This should take about 30 days. Also noteworthy is that after seven years, delinquent loans and bankruptcies are automatically deleted from the report.Mortgage Hidden CostsSteve remarks that many home buyers fail to grasp the full costs of buying a home including, of course, the mortgage itself, but also “hidden expenses” related to repairs and maintenance among other items: fixing a roof or air conditioner, spraying for termite, etc. Tim recommends that home buyers first use a mortga...
First published
03/01/2017
Genres
Duration
11 minutes
Parent Podcast
The Steve Pomeranz Show
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