A House and a Ferrari . . .
. . . for the Cost of the House???!!!

The importance of having good credit cannot be overstated, especially when purchasing a home. The inability to generate traditional financing and purchase a home due to poor credit aside, having only mediocre credit can translate into paying far more for the same exact house. In some cases, the difference can be the cost of a luxury automobile . . . perhaps even a Ferrari.

Credit for Home Purchase

Failing to meet a minimal threshold FICO score (hereinafter FICO) can prevent one from purchasing a home (or even being approved as a tenant). Typically, for an FHA loan a minimum FICO of 520 is required, while 640 is generally required for conventional loan eligibility.

While meeting the minimal FICO requirement can make a person eligible for a loan, having an excellent score can mean savings in the tens of thousands of dollars over the life of the loan. In addition to a higher interest rate, mortgage insurance can be double the cost for those with lower credit scores. In the example of a $400,000 conventional loan, the 640 FICO interest rate would be 5%, while that of the 740 FICO would be only 3.99%. This translates to more than $75,000 over the life of the loan. For the mortgage insurance, the difference could be more than $35,000 over 10 years.

Another important benefit of having excellent credit is that the borrower can qualify to purchase a more valuable house insofar as the interest rate and therefore payment amount is less.

Other Benefits of Excellent Credit

Other benefits of excellent credit include being able to obtain premium credit cards with a low interest rate, competitive auto loans, and establishing phone/utility services without deposit, etc. In the case of an auto purchase, a $25,000 loan with minimal threshold credit could add an additional $6,000 to the cost of financing.

Surprisingly, some employers run the credit report of prospective employees. This means great credit could translate to a better job.

Strategies to Clean Up Credit

Of course, one could try to repair his or her own credit. There are tremendous resources on line. A good resource is CreditRepair.org. Otherwise, googling “credit repair” will yield to a wealth of on-line information.

Professional assistance is perhaps the most convenient and effective method of credit repair. The key is to select a reputable company which can be done by investigation through on-line reviews, consumer reports and/or the better business bureau. A company with which our brokerage has had good experience is GoCleanCredit.com. Their costs are competitive to the industry, generally $200 to start and $100 per month.

Conclusion

With excellent credit, the buyer’s dream home may very well be in reach . . . perhaps even including that free Ferrari!

For more information, please contact the author.

Jacques-Henri Munro,

Designated Broker/CEO
Munro Realty International, Inc.
JHMunro@MunroRealty.com