Homebuyer credit scores on the rise
Posted on Tuesday, November 6, 2012 at 9:54:49 AM
When it comes to buying a home, your credit score is very important. In the wake of the recession, many consumers worked to repair their credit standings and as a result, homebuyers' credit worthiness recently hit the highest level in nearly 12 years.
The average prospective mortgage borrower's credit score increased 40 points since 2006, according to a report from the Federal Reserve Bank of Atlanta based on data from the Home Mortgage Disclosure Act. In addition, to curb mortgage fraud, homebuyers are now more honest about their incomes to ensure they only take on loans they can realistically afford.
"Comparing home-purchase borrower incomes reported in the HDMA data with income reported by homebuyers in household surveys suggests that incomes on mortgage applications were likely significantly overstated during the peak of the housing boom," the report said.
The report shows that the top 10 percent of buyers have credit scores high than 775. Meanwhile, 25 percent have scores greater than 650. The median credit score for borrowers currently falls between 700 and 750.
This development is a good sign for the mortgage industry. Following the real estate bubble burst, lenders implemented stricter standards making it harder to qualify for a mortgage. As more borrowers fall in line with these standards, lenders may be more inclined to extend lines of credit to additional borrowers.
Readying your credit for homebuying
Your credit score goes a long way in determining the mortgage rate you receive, as well as the terms of your loans. For this reason, it's important to ensure you credit is in top shape before you apply for a mortgage.
The best way to ensure your credit standing is where it should be is to order a copy of your credit report from one of the major credit reporting bureaus: TransUnion, Equifax and Experian. Nearly 70 percent of these documents contain errant marking, so it's important to look it over for anything that seems out of place. This includes inaccurate late fees and balances.
Some people avoid monitoring their credit because they don't want to pay for the costs involved. Luckily, under federal law, you are entitles to one free copy of this document from each of the credit reporting bureaus every year. However, if you want to check you standing more often, you may be required to pay a fee.