When a homeowner is purchasing the next home and needs a mortgage, any payment slips during the previous 12 months is bound to cause pain.
As North Shore Advisory, a credit restoration company, notes in a recent newsletter:
Most lenders do not want to see late payments on an existing mortgage for 12 months prior to loan application. If recent late payments occur, individuals can find themselves in a frustrating position with nothing but a dead end or exorbitant interest rates in sight.
A borrower with a 720 Fico score who was 30 days overdue with a mortgage payment could see a drop in the Fico score to 630-650, the newsletter says. Someone with 780, would go down to 670-690.
You can imagine that being 90 days behind would be even worse. In the first case, the score would fall to 610-630. For an individual with an original 780 score, the penalty would be a score between 650 and 670.
Lapses can be costly, indeed. Not only can they mean a higher interest rate and thus many thousands of dollars in needless loan expenses every month for years, but they can jeopardize mortgage approval altogether.
The lesson is clear: Of everything that can affect your Fico score, keeping current with mortgage payments may well be the most critical component to keep in mind.
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Licensed Associate Real Estate Broker
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022