Posted by Lee and Katherine Keadle on Thursday, April 27th, 2017 at 3:36pm.
A home buyer’s credit score helps determine the down payment she’ll make at closing, her buying power (how much she qualifies for), the Private Mortgage Insurance (PMI) premium, interest rate, and the overall monthly mortgage payment. Because credit affects so many aspects of the lending process, every home buyer should care about her credit. It’s amazing how even a 20 or 40 point increase can change the affordability of the home you purchase when the price of the home stays the same. For buyers who can push their credit score over the 680 milestone, we see a substantial improvement in their mortgage options.
I’d like to make very clear that not all credit enhancement programs are trustworthy or effective. In fact, I think probably only a small percentage of programs are legitimate and actually have the clients’ best interest in mind. A lot of the advertised credit repair companies charge a high monthly fee and string the clients along an endless journey (collecting their payment along the way). These groups are in no hurry to make real changes, and results that take 5 months should only take 1 month to complete.
Home buyers should talk with their Realtor to get recommendations on reputable programs that have a proven track history of results. Our in-house mortgage company, Carolina One Mortgage, has a great program that I’ll use as an example here.
For anonymity and also confidentiality laws, let’s call the buyer Jane Doe. She recently used the Carolina One Credit Enhancement Program which is free and can be used by any client with a credit score of 580 or greater. The program uses a computer generated algorithm to determine very specific instructions on how to get a score increase of X number of points. For example, Jane needed a 30 point increase in order to put her into the next bracket or milestone of mortgage options. Within 24 hours of the team submitting her info, Jane got her results – which, again, are very specific. She needed to pay a $290 balance on her account at ABC Bank account ending in ###. She followed these instructions, and here are the results she got:
|Before the Program||After the Program|
|Principle and Interest||$1,189.67||$1,123.39|
|Private Mortgage Insurance (PMI)||$167.95||$136.88|
|Monthly Savings of $97.35||$1,357.62||$1,260.27|
Jane saved $97 per month on her mortgage payment by using this program. That is substantial. In this example, there are two important things to note. First, Jane knew the number of points her credit score would increase before she paid off the outstanding balance because it had already been calculated in the algorithm. This predictability and accuracy are so important because no buyer wants to fork out money without getting the desired result.
The second important part of this story is that Jane only spent $290 to get the results. Because the program is free to Carolina One Mortgage clients, all of the money she spent went directly toward paying a balance that she was going to have to pay at some point anyway. With her $97/month savings on her mortgage payment, this cost will have paid for itself within 3 months.
Programs like this are a win-win for everyone. The client/home buyer is thrilled to save money. The company – in this case, Carolina One Mortgage – provides a service that goes above and beyond the typical lender and wins the business as a result.
The earlier you can start talking with a lender and getting your credit checked, the better off you’ll be when it’s time to make an offer on a home. The small tweaks I’ve discussed with this particular program only take about a week to improve the credit score, but imagine if you had months to make these types of changes and corrections. I can’t imagine why any buyers would turn down free help to improve their credit if it could save them a lot of money in the long run.