Credit scores and a first time home-buyer
Jason was a few years out of college earning $60,000 a year at the law firm. He decided since some of the properties near his office were at excellent purchase prices and his rent seemed to be increasing, that it was a good time to look into purchasing a house or condo.
He found an excellent property in Garden City, very close to his office. After extending an appealing offer, his real estate agent advised that he speak with a mortgage officer and shop around for the best rates. Jason never thought that his credit would be an issue; he had one revolving line of credit, always paid his rent on time, and was never late on his utility bills. After speaking with three separate loan officers learned that his credit score was not only low but it was limited in terms of variation and history.
In today’s environment many banks want to see seasoned (at least 1-2 years old) credit and a few well managed lines in the borrowers name as the primary card holder. This scenario ended up being quite disappointing to Jason, the seller, and the realtor who put all that effort and work into finding the property.
In the end, Jason was able to have his parents co-sign for the loan. In most cases people with limited credit end up having to pass on their “dream home” until they are able to build up and age their credit profiles.
Jason’s parents have also had to take on a burden due to his lack of credit; if something was to happen and Jason’s mortgage was no longer being paid, his parents would still be responsible for the mortgage and any unpaid debts would report on their credit.
This all could have been avoided if Jason had started building credit in his name at the age of 18, he could have had five accounts that were over four years old by now and his parents would not have had to take on this responsibility and risk their credit. Unfortunately many adults do not prepare themselves for investments on this nature especially as young college students. Many graduates these days have student loans that can lend a hand in building credit (in Jason’s case his college was paid for out of a trust), they should make sure that all their payments are made on time and try not to defer the loan after graduation. A trend of paying back your loan on-time coupled with a few well-managed revolving accounts will set you on the road to great credit.
As you can see credit plays an essential part in the cost of financing and even in the ability of the buyer to get approval for a loan at any rate. Please reach out to one of our credit experts for a free consultation.