Mortgage Myth Busters: Good Credit Scores could equal ticking time bomb - BAM

Good Credit Scores could equal ticking time bomb - BAM

credit scores - a ticking time bomb

 

Borrower : I would like to see this specific home...

Realtor : Have you spoken to a loan officer?

Borrower : No, not yet.

Realtor : Do you know your credit scores?

Borrower : Yes, I pulled my credit online and I have a  680, 705, and a 695, so I should be good to go, right?

Realtor : Those are very strong scores, so let's look at a few houses and then I can get you qualified.

 

 

Your Credit Score is more than just a number

 

People, it's not that simple. I have seen buyers pre-qualified primarily based on their credit scores, yet the loan officer or realtor didn't review the credit properly, which can still kill a deal at times. But the reason I am bringing this up is because I have seen a few blog posts written with many comments, all stating that they ask the borrower their credit scores. And if these scores are high enough, that they feel comfortable with this buyer and will take them out first, even before they speak to a loan officer. And I know some of you will disagree with me on this topic, because you all have your own way of doing things. But many forget, real estate is local and maybe in some high end markets, you can get away with this and get lucky. But I need to point out one harsh fact to those that think credit scores from online sources are reliable.

 

Reality : When you go online and use a credit company that is not pulling your credit for a mortgage company or a bank, it's considered a 'generic' credit pull. Meaning that it follows no rules, guidelines, or input regarding mortgages. When you go to a lender for a mortgage or a car company to purchase a car, they have credit agencies that use certain algorithms that are different from those credit repositories. These credit repositories are the 3 major credit bureaus; Experian, Equifax, and Trans Union. The credit scores from these three major credit repositories will differ from those when pulled my a mortgage company and bank when applying for your mortgage. Yes, there are other reasons that just the algorithm, such as how information is reported and or received. But the main point is that they can be very different, confusing, and frustrating.

 

Example : I have been working with a buyer for the last 5 months now who started off with 574, 595, and 581 credit scores when I pulled them internally. He was upset because he pulled his scores from online and they were 666, 697, and 683. WOW... huge difference, right?  I had another client that was about 45 points higher than what my scores showed. And no, it's not the credit agency that we use internally, because this same person had another lender pull them and the scores were the same as mine. Hence the specific algorithm that is used when it comes to credit reports for mortgages.

 

Disclosure : I don't work for a credit agency nor am I a credit export. I do have extensive knowledge of credit and credit scores aka fico scores. And I am sure this is not as detailed as it could be with more specifics, but I did want to educate people on the basics. And I did interview several different people from different credit agencies and the main ingredient is that mortgage credit reports will give a different result in credit scores than if you just went online and pulled your credit yourself. The online services are mostly for individuals to check their credit, to make sure it's correct, and to help stop identity theft. One problem is that you see/hear commercials from credit agencies telling you that you can check your credit for free, to know your credit scores for when buying a home, etc, etc. But they don't explain the differences, because it's a service that they want you to pay for, even though they mention the word 'free'. Just beware, be careful, and educate yourself properly.

 

Good enclopedia of terms regarding credit - The Credit Report Enclopedia -

 

~ Credit Score Series ~

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 20 commentsJeff Belonger • February 13 2011 10:21AM

Comments

I had a buyer who was well qualified with good scores. The lender found out he owned a lot. Now he had owned this lot for 40 years, but the lender insisted they have a title search done to PROVE they had no liens on it. You never know what they are going to look at.

Posted by Kathy Denworth, Realtor in the Florida Keys, Islamorada, Key Largo (Century 21 Schwartz Realty) almost 10 years ago

A realtor should not waste his or her time showing homes until the client has spoken to a loan officer. Great info!

Posted by Andres Munar, Experience The Difference (Keystone Alliance Mortgage ) almost 10 years ago

Jeff, some good information to the public to be aware of and take heed!

Posted by Rebecca Gaujot, Realtor®, Lewisburg WV, the go to agent for all real estate almost 10 years ago

Most buyers, and many agents, don't understand that credit scores will in fact vary based on the type of company making the inquiry.  Mortgage scoring models are different that those used in other industries.  I always caution everyone against purchasing their credit scores.  They are rarely ever the same as what a mortgage company will pull. 

Too many will incorrectly assume a buyer qualifies solely due to a credit score.  I had one last week with a 90% DTI TODAY. That is before a new purchase was even factoed in  He did have a bank issued a PQ letter to.  I am sure you can guess the name of it. 

To Kathy's comment, free and clear properties are now requiring more documentation now than before.

Posted by Rodney Mason, VP of Mortgage Lending - AL, FL, GA, SC, & TN (Guaranteed Rate NMLS# 2611) almost 10 years ago

 

KATHY.... . that is a whole other subject that I have blogged about several times and why realtors should not be pre-qualifying buyers.... just to many questions to ask and not justb the basic questions would be safe all the time. Some people just get lucky, but roadblocks can and do happen if you don't touch all the basics and then some. Example.. seeing someones W-2 and pay stub. Many don't know to look for loans or 401-k loans. And on a conventional loan, they need to be factored in.. thanks for your input.

GINERVA... . that is why I wrote this post, because depending on where or who pulls your credit, it won't always be the same. Generally, it will be the same within the mortgage industry, depending on when it's pulled.. but out side that, as I explained, there could eb a 100 point difference.

ANDRES... . the problem here is that there are many realtors that think they can even properly pre-qualify a borrower, especially based on a high credit score. And again, maybe they just have been lucky or because they are in a high end market area. But I am talking about generalities and what should not be perceived or done.. that's just me... and thanks for the compliment.

REBECCA... . not only the public, but realtors that follow other realtors around because they think differently. Maybe a few select could get away with this... but then others begin to follow just because...in my opinion, this is not good.

RODNEY... . exactly, hence why I had to write about this. Just recently, I have been reading to many comments that said they will take buyers out based on their credit scores. And you bring up a great point about high back end ratios.. high credit scores and money to work with does not make a loan approval. Thanks for your feedback..

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff,

With buyer impatience at an all-time high, I'll take them out one time to see houses, all my loan officer is working over there details.

Rich

Posted by Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Coldwell Banker Residential Brokerage) almost 10 years ago

 

RICHARD... and I understand that part and that some people want it now..... it's like dangling the carrot per se and to each their own... but my main point are those realtors that think hearing the credit score from the borrower, in which they got from online, is great information... especially when the great scores are high. I have seen a few loan denied because of this.. I would have to assume that the loan officer dropped their guard, thinking that the high credit score would be their savior. I have seen this happen more than a few times... and I just wanted to educated with the basics.  Thanks for your feedback.

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff, I agree with you totally. If someone tells you what their credit score is, whether 650 or 850, you're taking them at their word. We all can get, and probably have been, lucky by taking out a buyer or buyers based on what they've told us, and everything ended up working out. But I don't think you can have a successful business based on luck, right? Meet with the buyer before showing homes. Have them talk to a mortgage professional, like Jeff, to make sure they can purchase, and what their price range is. Without knowing all the facts, it's just a stab in the dark.

Posted by Eric Michael, Metro Detroit Real Estate Professional 734.564.1519 (Remerica Integrity, Realtors®, Northville, MI) almost 10 years ago

Yes, Yes, and an amen.

I tried to explain the point about different scores depending on who is pulling it.  You explained it much better.  This is strange but it is true.

Credit scores can and do change.

Posted by Mark Nehs (Mortgage Loan Officer Waukesha Wisconsin) almost 10 years ago

Online is up to 950...lenders to 900; easy as that...different scales for sure!  Online is not reliable.

Posted by Cindy Marchant, "Cindy in Indy" , Realtor, Fishers Real Estate (Keller Williams Indy NE 317-290-7775 www.marchantteam.com) almost 10 years ago

 

ERIC.... . Knowing what I know and how credit scores work, I have a huge problem when people rely on getting their credit scores from credit companies online. They could easily vary 40 points and I have seen them differr by 100 pts across the board. And yes, without knowing all the facts, it is a stab in the dark. Sure, some realtors know what they are doing, but there is luck involved when not properly pre-qualified. thanks

MARK... . I think this could be even explained better than what I stated, but thank you very much for the polite compliment.. but it needs to be explained in layman's terms, because yes, credit scores can change.

CINDY... .  well, I don't look at the fact that lenders or those online have a max and what they can go up to. It's the scary reality that they can be different by 100 points at a blink of an eye. And I can't tell you how many times I have to explain why this is different. Now I will use this post for my explanation. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff my question is this....why are Realtors asking a potential buyer what their credit score is?  You are right there is more to the picture than the score so why do Realtors think they can advise a buyer and be the judge of credit.  Refer the Buyer to a loan officer and let that LO do the job and determine the criteria then go show property!  It is not the Realtor's determination, the LO may have programs that will approve a variety of credit scores

Posted by Marilyn Boudreaux, Lake Charles LA Century 21 Realtor (Marilyn Boudreaux, Century 21 Bono Realty) almost 10 years ago

Jeff,

It's a gret post.

May I add?

It's best to meet with your Agent and LO togeather the first time!

Score alone is no longer enough. The number and types of debts creating those scores can invaladate even the higest scores.

Things on the report that don't affect the score such as NSF checks can be stoppers.

It's not on the credit report, but it's not enough to have the required cash, the cash itself must be accable.

It's the same with your income! Strange things happen. I had one young man with 9 employers in 6 months, yet he never changed jobs! His employer was sold 5 times and reorganized the only thing he knew was there was often a new name on his pay check.

The property has to be acceptable, this can be more than just appraising! FHA condos have been a real mess since 1-1-11! Recent flips can be a problem. Listing agents often have no idea about title issues.

The O & A has to fit the loan program!

Pre-qualifying leaves allot unanswered, pre-approvals cure some of the problems, but still leave allot to be determined! No matter what HGTV idiots do most buyers can go over their budget 5, 10, 20, 30, 40 or 50%!

As to showing houses before meeting a LO, we'd all show one to meet the client, but show a second tells us the agent has no self respect and is most likely incompetent.

LO's and agents working together can do miracle's!

Bill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) almost 10 years ago

Great Post! and so very true. Same thing happened to me a couple of weeks ago. A local realtor wrote an offer on a customer that had great credit scores! He even had a copy of his credit report to prove it. Little did she know, he had a heft alimony and child support obligation that kept him from being able to afford the price range of houses he had been looking at for weeks. Always recommend that a buyer speaks with a Mortgage Loan Professional before wasting any time showing houses they may not qualify for!

Posted by Christina Lane (Peoples Home Equity Chattanooga, TN) almost 10 years ago

since we cannot use the bureau the consumer pulled it wouldn't matter what the scores were. also when a potentil buyer says they pulled their own scores i always ask when? some of the answers aren't that funny, or maybe they are.

Posted by Jay Beckingham, Seniors ROCK! (Christensen Financial Mortgage) over 9 years ago

I agree the credit score is only one piece of the qualification process.  Granted without the score, it is impossible to get loan approval.  As more and more lenders are increasing the overlays on underwriting criteria, even a good score doesn't guarantee approval.

Posted by Kathy Sheehan, Senior Loan Officer (Bay Equity, LLC 770-634-4021) over 9 years ago

Jeff - Thank you for sharing detailed quality blog about good credit scores could equal ticking time bomb bam.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) over 9 years ago

This is great information! I have found that when I pull credit, the scores are much lower than the scores that borrowers are pulling themselves. So, I always let realtors know that you cannot rely on the accuracy of the self scoring products.

Posted by Kristen Phillips (Capital City Bank) over 9 years ago

Nice post, it's true that buyers think that the regular retail consumer report they get is worth a lot more than it really is when we pull the mortgage version. But good information like this does find it's way out into the community and help spread the word that it's an indicator but not the whole story.

Posted by Michael Rohde (Sunstreet Mortgage LLC. Licensed Mortgage Professional) over 9 years ago

Jeff, This is so true. Both on purchases & refinances many people assume they are "good" and then there is always a hidden suprise at the last minute. We as loan officers are the ones left to be the super hero of the transaction and find a solution when someone hasn't done their part.

Posted by Ben Gerritsen, Mortgage Loan Originator (Mortgage Miracles Happen, NMLS ID: 1289680) over 8 years ago

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