FICO Scores: Who Have The Best Overall?

Who have better credit scores on average - home buyers with higher or lower incomes?

Many might guess home buyers with higher incomes. The surprising answer is: People with lower incomes have slightly higher FICO scores. That finding, which emerged from a statistical analysis of all approved mortgages insured by the Federal Housing Administration (FHA) during fiscal 2007, is now supporting a forthcoming major policy switch that could affect thousands of buyers and refinancers.

FHA, which for decades has used a one-size-fits-all approach to pricing its insurance on home loans, plans to shift to a "risk-based" system keyed to FICO scores and down payments, beginning as early as mid-July. Private sector lenders and insurers have priced interest rates and premiums using sliding scales of FICO scores and down-payment amounts since the mid-1990s.

Under the new system, according to FHA's outline of its plan, "a larger number of low-income borrowers (will) benefit from premium reductions than . . . moderate-, middle- and upper-income borrowers combined."

To set premium rates by credit standing, FHA plans to use the middle score of an applicant's three FICOs generated by the national credit bureaus - Equifax, Experian and TransUnion. If only two scores are available, it will use the lower. For applicants with thin or "non-traditional" credit histories on file at the bureaus, FHA will underwrite and price the loans without reference to FICOs, with heavier emphasis on rent and utility payments among other measures of creditworthiness.

Comments about this move on the part of FHA? Sound off by using the "comment" link below.

Reverse Mortgages: How Do They Work?

Reverse Mortgages are exploding in popularity and as more and more baby boomers reach age 62 and beyond they will become eligible to cash in on their home equity with a reverse mortgage.

A reverse mortgage is a home loan you don't have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you prefer. The loan and interest are repaid only when you sell your home, permanently move away, or die.

Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home's value at the time the loan is repaid. You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full.

The amount of funding you get from a reverse mortgage usually depends on your age, your home's value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs. Most people get the most money from the Home Equity Conversion Mortgage (HELM), a federally insured program.

Loans offered by some state and local governments are generally for specific purposes, such as paying for home repairs or property taxes. These are the lowest cost reverse mortgages. Loans offered by some banks and mortgage companies can be used for any purpose.

If you have questions about Reverse Mortgages, and whether they might be right for you, post your question or comment using the "comment" link below and we'll get back to you with answers to your questions, or find a loan professional who can answer your questions for you.

Pre-Cooking on Amateur Budgets

As Americans, we typically only spend more on housing and cars than we do on the food we eat. Normally when you pay less, you get less, but that's not necessarily true when it comes to the food you buy. Money editor Stacy Johnson explains… (video runs 1:39)

If you have any other money saving tips you'd like to share, please chime in by using the "comment" link below. We welcome your input, and remember, your email address will never be published here (for your privacy and protection.)

Your Comments Welcomed

We'd love to hear your comments about whether you think the economy will improve in the second half of the year?

And we'd also like to know what, if anything, you are doing to weather the current economy… or have you not been affected at all?

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Mortgages: Pre-Qualified vs Pre-Approved

When you are pre-qualified for a mortgage of some amount, this is simply a quick measure of what you probably can borrow. It is based on a few answers you give to things like how much income you have and the amounts of any debts you have. It does not, however, mean the bank or lender who pre-qualifies you has agreed to lend you anything. Your income still needs to be verified, and your credit report will need to be looked at.

Loan pre-approval is different. Once the lender has verified any important facts and seen your credit score, you can be approved for a loan up to a certain amount. You should get a letter showing what they will lend you and at what interest rate.

This still does not guarantee you a loan. If interest rates change much prior to you finding a home and making an offer that is accepted, the lender may lower the amount they are willing to lend to you, since the total payment amount is important to whether you can afford the loan or not, and higher interest rates could change this amount. Also, changes in your credit score could affect the final loan commitment. Keep this in mind, and make all offers subject to an actual loan commitment.

Make a few copies of your loan pre-approval letter. Presenting it with an offer on a home is a good way to show the seller you are serious and prepared to close. If the seller has ever had an offer fall apart due to a buyer who couldn't get financing, he will be very happy to see your pre-approval letter. If you are looking for more than six months, you may want to get a new pre-approval letter, to show that you are still able to buy at the current interest rates and with your current credit score.

If you have any questions about the difference in being pre-qualified vs. being pre-approved, just use the "comment" link below and post your question here. We'll reply with an answer to your question. Remember, your email address will never be published here to protect your privacy.