First Time Home Buyers – FICO Score

First Time Home Buyers – FICO score should be determined early on in the buying process. This is an important step in the home buying process. By understanding your FICO score and obtaining a pre-approval letter from a lender will greatly enhance your chances of obtaining loan approval…Your lender will then determine your maximum loan amount … or your buying power! A reputable lender will do a preliminary credit check and review the automated underwriting systems for conditions prior to determining your buying power. Your estimated loan amount will be computed based on your credit worthiness.

As a first time home buyer you should talk to a lender or search online for your FICO credit score. Many lenders have lowered the threshold for First Time Home Buyers – FICO credit scores from a year ago….Now you may be able to qualify for a mortgage loan with a lower credit score. Many potential buyers believe they need near-perfect credit scores to get a home.

However, a large number of first time home buyers do not have any idea of the minimum FICO score needed to
purchase. Buyers usually assume the minimum score to purchase a home is 770 or higher… According to an article in the Washington Post Market Analysis section – The Nation’s Housing by Kenneth R. Harney,
a number of statistical samples and surveys were conducted to support the above facts. In the article Mr. Harney writes that in a poll on behalf of mortgage lender loan departments – first time home buyers are uncertain and lack specific knowledge about the current market conditions relative to them qualifying to buy a home.

Lenders are reverting back to two old forms of debt ratios to determine a buyers’ actual buying power. Lenders use a “front end” ratio that compares the monthly costs of the proposed new mortgage to your actual monthly gross amount plus other housing expenses with the buyer’s monthly gross income. And, a “back end” ratio that compares all recurring monthly debt, obligations, including housing expenses, student loans, credit cards and the like to a buyer’s gross monthly income.

Debt ratios vary with lenders, but the FHA average “front end” (housing costs) for purchase loans was 28 percent. FHA “back end” total (recurring debt) ratios averaged 41 percent. Fannie Mae and Freddie Mac loans averaged 22 percent ratios on the “front end”. Fannie Mae and Freddie Mac “back end” ratios was lower at 34 percent.