FICO Score

FICO Score

Your FICO score is a numerical representation of your creditworthiness and is one of the most widely recognized credit scores used by lenders. This score is generated using an algorithm developed by Fair, Isaac and Company (now known simply as FICO). The company analyzes consumer credit files obtained from various credit bureaus to calculate your score.

FICO pulls credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. The score is calculated by applying data from these credit reports to a specific formula. While the exact formula used to compute the FICO score is confidential, the main components that influence the score are known. These include:

  • The total amount of your overall debt
  • Your history of making timely payments
  • The length of your credit history
  • The frequency of credit inquiries (how many times your credit has been checked)
  • The types of credit accounts you have

 

Your FICO score plays a critical role in the mortgage application process, as lenders use it to assess the likelihood that you will make timely payments on your mortgage. Therefore, it’s essential to be aware of your FICO score; a higher score typically increases your chances of securing a lower interest rate on your mortgage, which can lead to significant savings over the life of the loan.

Loan Approval

Your loan is approved when lenders officially grant you a mortgage based on the information you provided in your loan application.

Fannie Mae

Fannie Mae is a government agency that buys mortgages from lenders to help them reinvest. Its mission is to stimulate the U.S. mortgage market and increase affordable housing availability.

Loan-to-Value Ratio

Loan-to-value (LTV) ratio compares the loan amount to the home’s value. It helps assess the risk of granting a mortgage and influences mortgage insurance rates.

Conventional Loan

Conventional loans come from lenders not backed by the FHA. Because they carry more risk, they often need larger down payments.

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