Real Estate Credit Help

You may be shocked at some of these credit facts because you've heard otherwise. Qualifying for a real estate purchase requires different credit than auto financing or credit cards.

What you've been told:

1. Pay off your credit cards

2. Close credit accounts

3. You need good credit to buy a house

What you need to know:

1. Paying off your credit cards lowers credit scores

2. Closing credit accounts lowers credit scores

3. You don't need good credit to buy real estate

Why not pay off your credit cards? Paid off credit cards do not compute significantly in credit scores.

Why not close credit card accounts? Credit card issuers frequently raise interest rates on closed accounts.

Credit Requirements for Mortgages

You can buy real estate with poor credit, but you will save thousands in loan costs if you maintain good credit. A bad credit report leaves homebuyers with non-prime loans, which have higher point charges, prepayment penalties, and higher interest charges.

For instance, a mortgage loan of $150,000, 30-year, fixed-rate mortgage, interest rate of about 5.72 percent costs around $870 a month; poor credit scores raise the interest rate over 9 percent and the payments over $1,200. As you see from these payment differences, good credit means that you can finance a more expensive house with the same income, or save $330 each month.

Credit needed to finace real estate is not the same as good credit. Besides your credit score, mortgage lenders consider your debt-to-income ratio and other credit matters, unlike other types of credit grantors. (Your debt-to-income ratio is the comparison of mortgage payment, including taxes, interest, and insurance to your total gross monthly income.) Real estate lenders also consider your education, employment qualifications, and your overall montly debt payments.

Understanding the difference between good credit and the credit needed for real estate mortgages helps you buy houses and save money at the same time!

(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Real Estate Credit Help Center