Millions May Qualify for Mortgages Under New FICO Changes

Do You Qualify For a Mortgage Under The New FICO Changes?

( – There’s nothing more frustrating than failing to qualify for a mortgage that actually costs more than your current rent. Renting’s expensive and strict mortgage rules involving FICO scores make it difficult to qualify for a mortgage if your credit is less than perfect — even though you have proof that you can handle the financial payments, often in the form of regularly paid bills such as rent. If you’ve paid rent for years at a higher rate than your prospective mortgage payment, logic would dictate that you can pay your mortgage… but you could still be denied that loan.

This problem has vexed potential homebuyers for years, making it difficult for individuals and families to have homes of their own. This contributes to a shortage of home ownership opportunities for people who could afford to take them on but don’t — because their credit score is haunting them.

Fortunately, changes are now on the horizon, and your rent will factor into your credit score along with your utilities and phone bill. For many who have a short credit history or bad credit card debt, rent payments are a significant amount, and a payment they make regularly.

What Is a FICO Score?

FICO comes from “Fair Isaac Corporation.” This company created a credit score calculation method based on information they could get from agencies who report credit. While there are other models, FICO is the standard, and many lenders (and landlords) make decisions based upon FICO score. From a low-limit credit card to a loan, you need an adequate FICO score to get one.

FICO comes from three credit bureaus: TransUnion, Equifax, and Experian.

Note that if you use a source like Credit Karma to check your score, it IS reliable — but there could be a delay with what your lending partner sees, or they may only use the scores from one of the credit bureaus.

What Changes Can You Expect?

Your FICO score will likely change soon, because soon the FICO score will be required to include VantageScore when making lending decisions. This requirement, specifically for mortgage lenders.¬†This is significant because VantageScore includes reporting information about a loan applicant’s utility, phone, and rent payments. Imagine if your rent payments factored into your credit report — this is a critical first step towards that reality, and it will affect about 10.7 million households in the United States.

Who Will Benefit Most from New FICO Changes?

Black American households are projected to benefit most from the new FICO requirements. This will also help anyone who pays rent and utilities on time and regularly. VantageScore is much more generous to people in that situation, as it includes both of those factors in the calculation.

While this announcement was made by the Federal Housing Financing Agency (FHFA) in October, actual changes and enforcement is a “multi-year effort.” This means that these plans might not immediately affect you — but if you are looking to buy in the next few years, they could lessen or eliminate a financial disadvantage you’re currently facing due to the way FICO scores are calculated.

If you’d like to get an idea of where you currently stand financially, check out:

  • VantageScore: the new type of report that will be included in FICO.
  • Credit Karma: a free website that allows you to monitor your scores (note: this site is advertising based, so they may try to sell you credit cards you may or may not need or want).
  • Federal Housing Financial Agency (FHFA): government organization responsible for this change; also a good source of information ont he housing market.

Keep informed about this and other changes before attempting to prequalify for a loan — and always know where your credit score stands before you go into any major financial negotiation.

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