Justin: We are on. Hey Brian, how are you?
Brian Martucci: Hey, good, Justin.
Justin: Good. Well, happy Thanksgiving to you. I know this is kind of a holiday weekend, but what you have to say is pretty important, especially with everyone hitting Black Friday today.
Brian Martucci: That’s right. Sure is.
Justin: Okay. So let’s talk a little bit about credit scores.
Brian Martucci: Yeah, so credit scores are obviously really important. It’s probably the bedrock of underwriting alone. The first thing anybody looks at is the credit score and the important thing to know is what the minimum credit scores are, of course, finding out what your credit score is and making sure that you’ve got an acceptable credit score for the loan that you’re applying for.
Justin: Let me just ask you a question there. So, if I’m about the apply for a mortgage, would it make sense for me to go to Free Credit Score or whatever these websites are and get my credit score so that I know where I am or is this a different kind of a credit score you look it?
Brian Martucci: Right. I think it’s a different type of credit score. Credit scores are a little bit of an unknown. Nobody really knows what goes on behind them, but I’ve noticed just anecdotal data, and I pull a lot of credit reports, that FreeCreditScore.com and the average consumer credit report does not equal or is not as thorough or is not as properly scored as what we pull on our side of the mortgage industry. So, I think getting a FreeCreditScore.com is good just for a consumer to see is there any fraud going on, things like that, checking your credit activity. I don’t know that I’d rely on it for the actual credit score. I think we pull something more thorough and it’s important to note, one of the myths of credit scores is that, oh, if somebody pulls my credit score, my credit score goes down. That’s not true.
Brian Martucci: You could have five different mortgage lenders – and that’s the key; it’s got to be a mortgage lender – pull your credit score in the same week, day, even up to maybe the same month and the credit bureaus figure maybe you’re just shopping around for a mortgage or looking to refinance or looking to prequalify for a purchase, whatever it is. That doesn’t dock your credit score. Now, if you’ve gone out and looked for five different credit cards, maybe a cell phone account, those types of consumer inquiries will hurt your credit score. But I would say, check with a mortgage lender for your credit score, if you’re going to do something mortgage related, over a FreeCreditScore.com.
Justin: Okay. So what is a credit score where you say, “Sorry, but we’ve got to fix this.”
Brian Martucci: Right. That depends on the loan. I’ll break down the discussion into two types of loan types and those are basically FHA loans or a conventional loan. On an FHA loan, most lenders will easily go down to a credit score of 640. Some will even go down to 620 and I hear there are a couple of special FHA loan products that might even go to 580, but I think for our discussion, I would say, “Gee, it really would be great if you had at least a 640 credit score because then you have access to the most number of lenders and the best rates.” On the conventional side, it’s a bit of a matrix. You can have down to as low as 660, so the minimum credit score is a little bit higher than on FHA, but then the interest rate that you get will be quite different based on your score. For example, to get the best interest rate for any conventional loan, you need a 740 credit score. So you can have a 718 credit score, which is a perfectly acceptable credit score, but it might cost you an extra three quarters of a point, not on the interest rate, but in the points. So if a market rate was, let’s just say it’s 4% with no points for the sake of argument, if you have a 712 credit score, it might be 4% with three quarters of a point and that’s three quarters of 1% on the loan amount. If you borrow $400,000, three quarters of a point, that’s $3000 in points. If you have a 669 credit score on a conventional loan, you’ll get the loan, but it could be a two point hit on the pricing, so you might pay 4% and two points which could be $8000 in points on that same $400,000 loan.
Justin: So when you do that, it would also make sense to talk to your realtor about how you’re going to structure the negotiation, right? So maybe some of these points can be bought back during the closing, so negotiate that in closing maybe, instead of just always go for lowest offer.
Brian Martucci: Right. I mean, if you’ve got the ability to build some points into the deal and if you’re tight on cash a little bit and maybe you can negotiate an $8000 seller credit for closing costs, maybe that can go to cover part or all of the point hit that you may take if you’ve got a lower credit score.
Justin: Okay. Well, we’ve got a lot to talk about with this credit score thing, but quickly, so if I come up with someone who says, “Well, I’ve got a 550 credit score,” should they just forget all about it and bury their heads in the sand for five year or what should they do?
Brian Martucci: There are probably two things to do there, three things to do I’d say. One is to bury your head and forget about it and come back and try a couple of years later and, of course, correct whatever the deficiencies are. If you’ve got a 550 credit score, you probably have some collections, some judgments, a bunch of late payments and the answer would be pay off the collections and judgments and start to pay your bills on time, perfectly, every month. It could take a year, more, a couple of years depending on the extent of the damage, but you may find yourself getting up to a minimum credit score. Another option would be not to wait, but to consider going to a credit counselor who might be able to help you raise your credit score, challenge some of the credit issues that maybe are mistaken or you feel are challengeable. But, be very careful with something like that because a lot of these “credit counselors” are scammers and they’re going to collect a fee and do nothing or maybe do worse damage. You really have to qualify these people before you turn over your information to somebody who’s going to maybe help you fix your credit score. I’ve found that for most issues credit related, it’s just time. Just pay your bills on time, correct the issues and wait. But there is an opportunity to – even I – maybe they even have to go to a credit counselor. I’ve help people fix their credit scores in a matter of a couple of months so they could still buy in their relative time frame that they’re looking to buy and not have to wait a couple of years and not have to go to some credit counselor that you wonder if he’s going to scam you.
Justin: Right. So probably don’t Google that. Call your trusted realtor or your trusted mortgage lender or one or the other and say, “Hey, do you know anyone who can help me,” since we work with these people who we know and trust.
Brian Martucci: Right. When somebody calls me, I see first if I can help them, second, if I should refer a credit counselor or if it’s something that they should just kind of take the slow road and really work on things and then come back. And we’ll stay in touch and try again at another time.
Justin: Awesome. Well listen, I’m going to let you go out and run. I know there’s probably a bunch of things that you want to spend your credit on [LAUGHTER]. So happy Thanksgiving and happy Black
Friday and thanks again, Brian.
Brian Martucci: Thanks Justin, you too. Have a good holiday.
Justin: Thank you. Take care.
Brian Martucci: Okay.
Brian Martucci: Bye-bye.