As real estate agents, time is an incredibly valuable and very limited asset. How much time you spend with each client on each individual transaction must be allocated appropriately in order to be of maximum service to your clients, and for growing your business to the level you strive to achieve. One way that many successful realtors have found helps with this delicate balance is by doing the up-front due diligence of their buyers, in particular, for assessing the credit worthiness of a particular buyer and the impact it has on their timeline for being able to submit an offer. With that in mind, we thought we might share some tips and hints we've learned over the years to help give you an edge and maximize your efforts.

          One of the most common concerns that arise when a prospective buyer is introduced to a mortgage lender is how having their credit pulled will affect their scores for getting qualified. It is important first to understand the two types of credit pulls, most commonly referred to as "soft or hard pulls". A soft pull is when a person or company checks your credit report as part of a background check and does not require your permission. These types of inquiries have no impact on our credit scores. A hard pull is most associated with financial institutions or credit card issuers for use in making lending decisions. Hard inquiries may remain on our credit report for two years, but only influence a person's credit score between approximately 2-5 points.

          An additional piece to keep in mind, and very important, when it comes to mortgage applications the credit bureaus provide prospective buyers a 30-day window to shop around without any negative impact on that person's credit scores. This practice was deliberately put in place to help encourage prospective buyers to ensure they work with a lender they trust, and will provide the best deal for themselves and their families.

          Another issue many buyers are unaware of is how credit card balances affect our scores. Conventional wisdom might say that having a 0 balance on our credit cards would be the best since it shows how capable we are of paying everything off. This however is not true, and can unfortunately cost clients points off their scores unnecessarily. When we spoke to one credit company, they shared with us that maintaining a 25% credit balance on our cards provides for the greatest impact on our scores. Remember, it is our responsibly utilizing and repaying credit that results in favorable credit scores!

One other interesting thing to consider, if you're working with younger first-time home buyers with less credit history, in general it's suggested that the magic number for minimal trade lines on a report is three. So keeping that in mind, if a client needs some score improvement, have them take a look at their soft pull report from say Credit Karma, they might consider taking out a credit card and use the 25% balance rule to help them get to where they want to be.

Lastly, some great news in the way of regulatory updates. We learned that beginning July 1st of this year, excluding bankruptcies and foreclosures, public records added to credit reports after the 1st will be removed from credit reports once satisfied. As an example a judgement, once paid, will be removed. This will be huge going forward.

Interested in connecting with me? (three options)

1. Do you have a real estate topic for our next blog? Send us a message at [email protected]
2. Want to join me for lunch? E-mail [email protected] and let's get something on the calendar!
3. Looking to grow your real estate business by leveraging key mortgage concepts? Join us for our Elevate conference and RSVP to [email protected]. Our next event is October 26th, 2017 at the Marriott Courtyard in Boynton Beach!

 

The views of this blog, podcast, and on this site in general are solely those of the authors, Matt Weaver (NMLS-175651) and Zack Lewis, and do not express the views or opinions of Finance of America Mortgage.