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If you’re not rich enough to pay the full cash price for OC real estate, then you’re going to need a mortgage. If a business is going to lend you hundreds of thousands of dollars over the next 30 years, it makes sense that they’ll base their terms on your ability to pay. That factor, which comes from your credit report, is boiled down into a three-digit number called the “credit score.”

Numbers

Your credit score is the “most influential determinant of your mortgage rate,” according to Bankrate. That number can range from 300, which is very poor, to 850, which is superb. For mortgage purposes, however, the important range starts at 620, below which obtaining a mortgage is impossible, and ends at 740, which grants the best mortgage interest rate.

Consider a $400,000 fixed-rate mortgage in Orange County with 20 percent down and no points.

·         If your credit score is around 660, your Annual Percentage Rate (APR) for a mortgage would range from 3.7 – 4.52 percent, according to Bankrate. This compares to a national average rate of 3.85 percent and equals a monthly payment of $1,852 to $2,027.

·         With a credit score of 740 or better, your potential APRs drop to a range of 3.41 to 4 percent, which equals a lower monthly payment ranging from $1,768 to $1,910.

The difference between the low and high range ranges from $84 to $117 per month. This may not seem a lot for a one-time payment but over 360 payments, that’s a difference of $30,240 to $42,210.

Your Score

You’ll typically get your credit score when you apply for a loan, which doesn’t really help you, if you want to increase the number. Many services also give you this number for a fee. If you’d rather save money, you can get your score without cost or obligation through CreditKarma.com. You’ll need to create a free account, disclose a phone number, and Social Security Number.

To find out which of your financial dealings affect your score, you can also use CreditKarma to get your TransUnion credit report. This contains details of your personal data, employment history, and financial history, such as loans and credit cards, payment dates and amounts, and whether your accounts are in good standing or past due. You can also look at your credit reports for free from the other two reporting agencies, Equifax and Experian, by browsing annualcreditreport.com.

Improving Your Score

Look at your credit score and report at least a year in advance of the loan application so you have enough time to improve them, if needed. First, look for errors in your personal data, account numbers, payment dates, and amounts. If you discover any, contact the business that reported it (such as the bank or credit card issuer) as well as the reporting agency (such as TransUnion). By law, they must try and resolve the issue but this may take several weeks of months.

Bankruptcies, judgments, tax liens, and other financial issues are not good. They stay in your report for at least seven years with bankruptcies lasting 10 years and tax liens lasting 15. You can’t do much about these black marks except come up with explanations for why they exist, should a lender ask you about them.

Next, try to reduce your loan and credit card balances by paying off as much as possible. Potential lenders prefer that you’re saddles with fewer debts so you have more money to devote to paying off your mortgage obligation. Avoid opening up new lines of credit, such as additional cards, until after your mortgage is approved.

If you want to know more about getting a mortgage, credit scores and reports, or want to tour the models in our Orange County developments, please contact us.