Editor’s Note: Whether you rent or own, the place you call home affects nearly every aspect of your life. To celebrate National Homeownership Month in June, we’re featuring a series of stories to help inform your housing decisions and to highlight the benefits of homeownership education. Fannie Mae works at the heart of housing to provide financing that creates housing opportunities across the nation. For more about what we do, visit www.fanniemae.com/progress.
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Credit habits may influence your mortgage terms
June 5, 2017 | By Laura Haverty
For years, lenders used a credit score based on a 30-day payment history to qualify borrowers for a mortgage. But starting last year, Fannie Mae made it possible for lenders using its popular underwriting system to access trended credit data for a longer look back — up to 30 months— at bill-paying habits. This tells the lender if you continually and consistently make just the minimum payment or pay more each month.
This could be good news for many consumers hoping to qualify for a home loan. Some responsible borrowers may score higher with trended data than they would have otherwise scored. And a higher score could lead to more favorable loan terms. This could include “consumers who might not qualify for a mortgage because their credit reports contain too little information to generate a credit score,” notes Washington Post syndicated columnist Kenneth Harney. “Many of these would-be purchasers are first-timers — Millennials just starting out on their careers. Others are individuals who simply do not make much use of credit but now need a mortgage,” says Harney.
Think you’re ready to buy?
As a general rule, the new system will “benefit borrowers who regularly pay off revolving debt” and should “provide more creditworthy borrowers access to mortgage credit,” according to Eric Rosenblatt, Fannie Mae’s Vice President of Credit Risk Analysis and Modeling.
With that in mind, borrowers might want to visit a HUD-approved housing counseling agency to see how their credit stacks up, and learn if they’ll need to make improvements before speaking with a lender. This video can also provide better insight to how your credit score works.
You can also investigate low down payment products, and research down payment assistance available in your area. The extra effort could pay off in helping you find the right mortgage for you.