Credit: Do You Need It?

A recent poll states that 75% of American's have at least one derogatory remark on their credit report. 75%!! That is an astounding number. What that means to investors is that three out of every four buyers calling about your house are not qualified to buy. Ouch!

One of the hardest aspects of this business is getting your beautiful, rehabbed properties sold. Oh, it's easy enough to find a buyer. Who wouldn't want to buy a house that has a new kitchen, new bathroom, updated electrical, new carpet and tile, has been painted in and out! Finding a buyer is never a problem, finding a qualified buyer is another story.

What is a "credit bureau"? There are three major credit reporting bureaus, Equifax, Transunion, and Experian. All three report derogatory information provided to them by a creditor. If you have a credit card with Citibank and make a payment more than 30 days late, it gets reported to the credit bureau. The bureau reports liens, judgments, foreclosures, bankruptcies, credit cards, mortgage payments, car payments, etc. When you co-sign for a car, house, credit card, etc. it shows up on your credit report as well as the person for whom you co-signed. Basically, just about anything you do can be reported to the credit bureau.

What is a "credit score"? Credit is based on a score. The higher the score, the better the credit. For example, if you have a 680 or higher credit score you are a good risk. If your credit score is 520 or less you are a poor risk. Each time you make a 30-day late payment to a company who reports to the credit bureau, it shows up on your credit report. The more late-pays or no-pays you have, the higher risk you are and the lower your score will be. The higher risk you are, the harder it is for a mortgage broker to secure a loan for you.

It is important for investors to understand credit and how it works so you can assist your mortgage broker when trying to secure a loan for a potential buyer. When you ask your buyer, "How's your credit?", they usually think it is great. Most people do not realize how many different things can be reported to the credit bureau and how co-signing for Uncle Johnny five years ago can affect them today. It is not unusual for your buyer to be shocked at their credit score. A creative mortgage broker will be a blessing at a time like this.

What do you do when your buyer has a low credit score? Since most loans are "credit score driven", a good credit score is important. For a buyer to qualify for many of the FHA and First Time Homebuyer programs, they need a credit score in the 600's. Many of these programs allow a buyer to purchase a home with as little as 3% down. When your buyer has a low score they may need as much as 10-20% down. Unfortunately, most folks don't have that kind of cash. There is always the option of allowing your buyer to live in your property with a lease option while you help them repair their credit or you can find a new buyer.

If helping your buyers repair their credit interests you, there are several credit repair companies out there. To find out more about the company we work with turn to page eight.