The National Association of Realtors recently noted that home purchase contract failures have doubled, with 18 percent of NAR members reporting fallout in recent months.
Put simply, a contract failure is a cancellation related to a declined mortgage application, a low appraised value, or other various problems.
In other words, it’s a lot more difficult to actually purchase a home these days if you need a mortgage to finance it (which most of us do).
And of all the things that could go wrong during the mortgage underwriting process, a low credit score seemed to be the highlight, though you have to wonder how much short sales are mucking things up.
Per a NAR analysis, the average credit score for home buyers taking out conventional mortgages was 760 in 2010, up from 717 back in 2007, when just about anyone could qualify for a loan.
Since then, the average FICO score for loans purchased by Fannie Mae and Freddie Mac eased a bit, falling to 755 in the second quarter of 2011.
Still, it’s an excellent credit score, meaning only the most creditworthy of borrowers seem to be buying homes (or at least getting their hands on them).
Most Mortgages Go To Buyers with 740+ Fico Scores
Oh, and 70 percent of purchase-money mortgages went to borrowers with credit scores of 740 or higher, which is still pretty much an excellent score.
Meanwhile, less than one percent of loans went to home buyers with credit scores of 620 or below, which is traditionally considered “subprime.”
So if you’re wondering just how important credit score is when it comes to getting mortgage financing, wonder no longer.
I’ve touched on this topic before, mainly because I believe it’s the most important factor out there. And one of the few you can actually control 100%.
Not only does it determine if you’ll qualify for a mortgage, but it also greatly impacts what mortgage rate you’ll receive.
That’s right. A bad credit score could raise your interest rate several percentage points, costing you thousands over the life of the loan. Or deny you that much needed refinance to lower your monthly mortgage payment.
In summary, don’t be one of the many naive prospective homeowners that doesn’t stay on top of their credit, let alone know where they stand before applying.
Check your credit scores several months before applying for a mortgage to ensure everything is where it should be. And if it isn’t, fix it.
Otherwise you could just be spinning your wheels.
Read more: What credit score do I need to get a mortgage?