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Credit Scores and Mortgage Scores – What’s the Difference?

The credit score you see and the score a mortgage lender sees won’t be the same. They may be quite different. If your mortgage score is much lower than you thought, it could mean higher rates and closing costs. Why such a difference and what can you do?

What are Free Credit Scores?

Your bank and credit card companies may offer you free credit score access. Each month you can log in and see your updated score. This score is a ‘generic’ score. It’s for educational purposes and not meant to determine your ability to secure a loan.

The free credit scores are to help consumers know where they stand. You can use it as a guide to fix your credit before you apply for a mortgage, but mortgage lenders look at your FICO score. This is NOT the credit score your banks or credit card companies offered.

Mortgage lenders have a more specific credit scoring model because of the size of the loans they offer. For example, there’s a big difference between a $10,000 personal loan and a $500,000 mortgage.

Most free credit scores don’t offer the same information. It’s a good baseline to let you know if you’re in the ballpark for mortgage approval or low rates, but you want to know your FICO score if you’re in the market for a mortgage.

If you want access to scores closest to what mortgage lenders see, check out MyFico.com or Experian.com. They won’t be an exact match, but they are closer than the free scores.

What are Mortgage Credit Scores?

Mortgage credit scores go through your credit with a fine-toothed comb. Lenders need to know that you’re a good risk and that you won’t default on your mortgage.

Mortgage credit scores consider:

  • Payment history – This has the largest impact on your credit score. Even one 30-day late payment can bring your mortgage score down a lot.
  • Percentage of used credit – This also has a large impact on your mortgage score. The higher your credit card balance, the higher your percentage of credit used which lowers your credit score.
  • Age of credit – How long you’ve had credit also affects your credit score. The older your accounts are, the more information lenders have to see your payment patterns. Younger accounts may count against you.
  • Total debt balance – The more total debt you have, the more it hurts your mortgage score. Lenders want borrowers with minimal debts to decrease the default risk.
  • Recent credit patterns – If you recently opened new accounts, it could count against you. Lenders want borrowers who are financially secure and don’t need outstanding loans to get by.

Why Credit Scores Matter

Your credit score and credit report is a summary of your borrowing history. It tells lenders the type of borrower you are – whether you pay your bills on time or you default. Lenders can also tell if you borrow excessive amounts or even if you miss on repayment.

The credit score gives lenders a snapshot of your credit history right now. A high credit score means you have a good credit history and a low one means you’ve had trouble.

It won’t be the only factor lenders use, but it’s one of the major factors. If you don’t start with a good credit score, the loan only gets harder and more expensive to get.

How Credit Scores Affect your Mortgage

When you apply for a mortgage, lenders look at your credit score first. They use it to determine which loan program you’d qualify for, such as FHA, conventional, or USDA.

Once they determine which loan program you fall into, your credit score determines the loan term, loan amount, and interest rate.

Lenders use your credit history to determine your risk too. If you have a history of late payments or defaulting on debt, they may decline your application or charge higher rates/fees. If you have a solid credit history, you may get the best terms and lowest rates.

Lenders use your credit score throughout the process, and in the end, it determines the total cost of your loan. The higher your credit score is, the less you’ll pay over the loan’s lifetime. A low score means a more expensive mortgage.

Preparing your Credit for a Mortgage

When you decide you’re ready to buy a home, look at your credit first. Pull your free credit reports and go through them. Everyone gets free access once a year, but until April 2021, everyone gets free weekly access.

Look for:

  • Late payments – Bring them current
  • Debts exceeding 30 percent of your credit line – Pay your balance down as quickly as possible
  • Public records or collections – Satisfy the debts as soon as you can
  • Excessive inquiries – Don’t apply for new credit in the months leading up to the mortgage

What’s the Right Credit Score?

Every lender and loan program has different credit score guidelines. Perfect credit isn’t necessary, but rock bottom credit isn’t good either.

Falling somewhere between the two is ideal. Showing lenders you pay your bills on time and use your credit responsibly helps you get the loan you need. Even if you had blemishes in the past, they don’t hurt your credit score forever.

The key is to show lenders you can handle your debts now and that you’ve turned over a new leaf if you had some credit trouble.

Ideally, lenders want credit scores near the 700 range, but loan programs, like the FHA loan, allow scores as low as 580.

Bottom Line

Get your credit score as high as you can long before you apply for a mortgage. Keep an eye on your credit history, dispute any errors, and fix any mistakes you make quickly. Your efforts will pay off with low interest rates and the best mortgage terms.

The real estate market in both Colorado Springs and Pueblo is very competitive and having your credit in line will ensure you maintain a competitive edge.

Connect with me today so we can position you to get into the home of your dreams!

Additional reading: http://thekevinbaird.com/buyer-and-seller-closing-costs

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Buyer and Seller Closing Costs – What Should you Expect?

Anytime you go to the closing table, there are closing costs. Buyers and sellers pay fees to close the loan and complete the real estate transaction.

It can seem overwhelming, but we break down the costs for each side below. Understanding the fees helps you be as prepared as possible for your real estate transactions.

What are Closing Costs?

Buyers and sellers need professional services to buy or sell a home. The closing costs reflect the fees charged by each professional, whether it’s the mortgage lender, the county, attorneys, or title companies.

Buyer Closing Costs

Buyers typically pay 2 – 5% of their loan amount in closing costs. A large part of the costs are the lender fees to complete the mortgage.

Here are the typical buyer fees:

  • Appraisal fee – This covers the cost of the appraiser evaluating the house and writing an appraisal report. Lenders require an appraisal to determine the home’s value and if the loan amount you requested is within reason.
  • Home inspection – Lenders don’t require a home inspection, but most highly recommend it. An inspector looks at the house in further detail to determine its condition and report anything he/she finds wrong with the property.
  • Application or processing fee – Lenders charge a fee to run your application, pull your credit, and process your loan.
  • Underwriting fee – Lenders usually charge a fee to underwrite your loan or evaluate it to determine if you qualify for the specified loan program and what conditions you must satisfy.
  • Origination fee – Some lenders lump all fees into an origination charge. It’s a percentage of your loan amount, usually between 1 – 2%.
  • Discount points – You may choose to buy the interest rate down, paying money upfront in exchange for a lower fee.
  • Title fees – All lenders require title work, including a title search and lender’s title insurance to ensure the home is free and clear of any liens.

Seller Closing Costs

Sellers pay as much as 8 – 10 percent of the sales price, but the money comes right off the home’s sales price, so the seller usually doesn’t need funds at the closing.

Sellers usually pay:

  • Real estate commission – Sellers pay both sides of the real estate agent commissions (buyer’s and seller’s agent). Average commissions are around 6 percent.
  • Title insurance – If the buyer opts for owner’s title insurance, the seller usually pays it.
  • Property taxes and HOA fees – Sellers pay a prorated portion of the property taxes and HOA fees for the time they lived in the home.
  • Escrow fees – Sellers pay a fee for the escrow officer to conduct the closing. It’s usually around 1 percent of the sales price.
  • Transfer tax – Sellers also pay a tax to the county to transfer the property to the buyer.

Closing Costs are a Part of Every Real Estate Transaction

Every real estate transaction incurs closing costs on both the buyer and seller’s side. You can shop around for services and negotiate the fees, but in the end, buyers pay around 2 – 5% of the loan amount in closing costs and sellers pay 8 – 10% of the sales price to complete the transaction.

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How To Hire the Best Colorado Springs Real Estate Agent

If you’re serious about selling or buying a home, the most critical decision you will make is selecting a top Colorado Springs real estate agent. Top agents make the difference between a pleasant experience and a negative one. There are significant, tangible financial implications as well. For buyers, having a top real estate agent means that they will listen, communicate, and work diligently to find you the home of your dreams – all within a price you can afford. For sellers, top agents will help ensure your home gets top dollar, giving you the financial means to pursue your next adventure.

Whether you’re looking at buying in this area or you want to sell, here’s everything you need to know to hire the best real estate agent for your particular situation.

Search for Qualified Agents

Like most things in life these days, a search for real estate agents typically starts online. You may have seen some signs in your local neighborhood for homes that are selling, or perhaps you arrived at the site after Googling “Colorado Springs real estate agent.”

Either way, when you’re looking to hire a real estate agent, the first place is to search for agents that you think might be good candidates. If the agent has an about page, read that. Please take a look at a few of their listings. If you’re a seller, think about whether they look like something you would want for your home. If you’re a buyer, consider whether the agent has listings and familiarity with the houses in areas where you want to live.

Your instinct can often tell you a lot. If you like what the agent is offering online, it’s probably a good idea to contact them!

The Best Colorado Springs Real Estate Agents Communicate Well

Once you contact a real estate agent, the next step in the hiring process is to communicate your needs. Whether you’re selling or buying, the best agents know how to listen and learn what you want. If you’ve selected a skilled agent, they will act as a guide throughout the process, so you’ll need someone with whom you feel comfortable communicating.

Remember, you’re the one that ultimately has to be happy with your purchase or sale, so if your agent isn’t listening to your needs and desires, that might be a sign that you should go with someone else!

Ask Relevant Questions About Their Background

Once you’ve established that you and your prospective real estate agent can “get on the same page,” you’ll want to ask some questions to make sure that the person knows how to help you achieve your goals.

For a buyer’s agent, many people have questions that they suggest asking. For example, some places suggest asking things like “how long have you been an agent,” “do you have references,” or “have you helped buyers at my price range?” Similarly, for a seller’s agent, some people suggest asking about how they arrive at a list price or if they will also represent the buyer.

These are excellent questions, but really, having a checklist of questions isn’t what you necessarily need. Instead, what you want to do is determine whether your agent has the background necessary for what you want. For example, let’s say you want to buy a home in Briargate. A good question might be, “what should I know about the Briargate area,” or “have you ever helped someone buy a home in Briargate?”

(By the way, if you’re new to Colorado Springs, Briargate is an excellent neighborhood!)

These questions help you understand the experience that the agent has and how that experience will help your particular situation.

Start the Process

For buyers, once you’ve communicated your wants, a Colorado Springs real estate agent will typically come up with some suggested properties that you can look at (or, if you have some you’re interested in, you can always share them with the agent). At that point, you’ll have “hired” the agent.

For sellers, agents will have you sign a contract. This contract will set various terms and conditions, typically giving the agent the exclusive right to sell your property for some time. Once you sign that document, you’ll have hired your agent!

Finding a Top Colorado Springs Real Estate Agent Isn’t Challenging

There are plenty of qualified real estate agents, but finding the best one is a matter of finding the right person for your particular circumstances. An agent used to selling $5 million mansions will not give you the advice you need to sell a $200,000 condo, for example. Similarly, if you want to buy a $1 million home, finding an agent used to selling $500,000 condos downtown isn’t the best option.

Therefore, hiring the best Colorado Springs real estate agent is a matter of searching and communicating. Talk with individual agents. Ask questions. And, once you find an agent that listens and understands your aspirations, you can start the process of buying your dream home! Naturally, if you’re interested in living in Colorado Springs or you’re looking to sell your home, please contact me! I’d love to listen to learn more about your situation and see how I can help!

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Working from home with kids – “Guys, I’m on a call”

Pre-covid the daily routine was well rehearsed. I was commuting to the DTC area for work, the kids were going to their school campuses, and Shannon was mostly working from home. Other than the dogs, Shannon was able to have a nice quiet house to work her 9-5 and our hustle. Kids would come home in the afternoon and I would get home at dinnertime. Every day was perfectly choreographed. 

Early March, as news of COVID-19 began to spread, my company started a Covid task force and I was voluntold to be on it. Being a part of this task force allowed me to better understand and appreciate the seriousness of what was going on in the world, and how it would rapidly begin to change our lives. 

We started to put in place strategies that would allow us to migrate two offices located in Colorado and California with a total of about a 1000 employees to work from home. This was both profession level and customer service folks. We had a small workforce at home and were developing a plan for more, Covid caused that plan to quickly accelerate. 

Over the course of three weeks my team and I transitioned these employees from office to home. This required precision coordination to ensure that the customers and stores we serve would not be negatively impacted by this massive undertaking. 

To our surprise, we only experienced a minor slump in our key performance metrics during this move! If only that minor bump felt the same in my personal life. While everyone is adjusting, it hasn’t been without tears and copious amounts of ice cream.

Life looks different, we are all at home either in school or working. My workstation on any given day could be the dining room table, the couch, or the chair on the front porch. I’ve learned to become adaptable as our needs have changed and will stay this way indefinitely.

The advantages of working from home during Covid are being together throughout the day, something as simple as cooking breakfast, or going on a mid-day walk that otherwise would not have been possible if we weren’t all at home. It’s been fun to teach the kids life skills they otherwise wouldn’t have been around to experience.

Don’t get me wrong, as much as I love my family there are days where it becomes increasingly difficult to get work done, or even find a semi-quiet place to take a conference call. Did I mention we have workers coming and going helping us renovate our historic home too? Kids, dogs, saws, and the occasional motorcycle driving by sure makes my trigger finger faster and faster to hit the mute button.

The pros have outweighed the cons on any given day. For now I’ll accept that my dogs may bark on a conference call, switch workstations on the fly, or pause my day to walk with my wife in our historic Pueblo neighborhood. No longer do I have to drive nearly 2 hours to work, instead I get to spend that time with my favorite people (and pets).

2020 has been a year for the history books already and we’re not even at the end. I try to treasure each day, love my family, and embrace the beautiful chaos that makes life feel real.

How has COVID-19 changed your day-to-day? What’s one good thing that you’re thankful for?