Even with rising interest rates, a solid mortgage rate is possible with a good credit score.
An Excellent Credit Score Is Within Your Clients’ Control
Maintaining an excellent credit score can save your clients thousands of dollars in interest over the life of a 30-year mortgage in spite of soaring home prices and skyrocketing interest rates. In fact, an excellent credit score is the single-most important ticket to helping your clients clinch the lowest interest rate possible.
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Here are some things for your clients to consider in the current housing market environment.
Mortgage Rates Just Hit a 12-Year High
The cost of borrowing money to buy a home is more expensive than it has been for 12 years.
Think about it…in March 2022, interest rates were at 3%…on April 14, 2022, the interest rate on a 30-year fixed-rate mortgage hit 5%…on May 5, 2022, the average interest rate on a 30-year fixed was 5.27%, according to the St. Louis Federal Reserve Bank.
According to Robert Heck, vice president of mortgages at Morty, “Increasing rates don’t necessarily mean it’s a bad time to buy a house. (Mortgage rates) have yet to rise to a level at which they could send demand and affordability into a steep downward spiral…” even though potential homebuyers have less buying power today than they had three months ago.
Rather than bemoaning rising interest rates and climbing home prices, Heck encourages potential homebuyers to focus on securing the lowest interest rate possible on the best mortgage they can find. How to do that? Have an excellent credit score.
Securing a Low Interest Rate
Before shopping for a new home, encourage your clients to begin the pre-qualification process by contacting lenders to determine whether or not they will approve you for a mortgage loan.
Lenders look at potential buyers’ credit scores to determine whether or not that buyer will qualify for a mortgage and for how much of a mortgage. That buyer’s credit score determines the kind of interest rates the buyer qualifies for.
Even if you potential buyer’s credit score isn’t perfect, the lender can inform the potential buyer where the downsides of their credit are, be they credit card debt, student loan debt, late payments, etc. The more your potential client can raise her/his credit score, the better as each point added to the credit score puts money into the potential buyer’s pocket rather than the lender’s.
Raising Credit Scores Quickly
Here are some ways to increase a credit score:
- Check your credit score report for mistakes, errors and/or evidence of paid off accounts – approximately 25% of Americans have a mistake on their credit reports, usually due to a duplicated or fraudulent account. Contact the credit bureau to correct that mistake as soon as possible. There are free credit monitoring services such as Experian, TransUnion or Chase Credit Journey. Use them.
- If applying for a mortgage, do NOT run up “extra” credit card expenses in the midst of that application process or open up/apply for a new credit card.
- If you already have credit cards, you have an assigned credit line that indicates how much you can spend. Ask to raise your overall credit line so you can lower your credit utilization by calling your credit card issuer. The lower your credit utilization, the better you credit score. Experian advises credit borrowers to keep their credit utilization to 30% or less.
- Pay your credit card bills on time.
- Become an authorized user on another person’s (family member or trusted friend) credit card only if that person pays their credit card bills on time. For most credit cards, this process is free and relatively hassle-free.
- Get credit for on-time rent and utility payments.
Lenders to Consider If Clients’ Credit Score Less than Ideal
Select recommends the following mortgage companies for potential home borrowers to consider if they have credit scores lower than the typical required score of 620. Select based its lender choices on the types of loans offered, customer service and the required minimum down payment.
- Rocket Mortgages – flexible terms
- Navy Federal Credit Union – VA loans
- CitiMortgage – no PMI
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Thanks to CNBC, Select, Avail, Experian.