Category Archives: Mortgage Loans

Kansas City Mortgage Lending, Kansas City Home Loans, Kansas City Mortgage Loans

USDA Rural Development Loan Program In Kansas City Could End Within 30 Days

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Checking The Pulse Of The Kansas City Real Estate Market

The popular USDA Rural Development loan program is set to run out of money at the end of this month. If you have any plans to use this loan program it’s very important that you contact your Kansas City mortgage loan officer to verify your loan will not have any issues. If you are in the preliminary stages of considering a USDA Rural Development loan program, you’re advised to get moving and definitely contact a lender who is still offer the loan program – I’ve already from one who has removed it from their loan options.


Just yesterday, Rick Woodruff with Metropolitan Mortgage informed me that he will continue taking applications and staying on top of new developments with the loan program. So there is still hope! For those not familiar with the loan, this United States Department of Agriculture (USDA) mortgage loan offers buyers 100% financing. Yes, 100% loans are part of what got us in our current financial mess, but I don’t make the rules and there are many financially solid borrowers who can make use of this loan.  In addition to not needing a down payment, borrowers will not have to pay PMI (despite obviously having less than a 20% down payment). The USDA loans are also your typical 30 year fixed rate loan, so no worries that loan may be an ARM or other foreclosure magnet.

Cost of the USDA loan include a 2% up front loan fee, which can be financed into the loan. But this  could make the loan more like a 101% foreclosure magnet loan. Thank you for pointing that out random italicized voice.  I’ll prefer to think of the lack of any PMI as making up for this 2% fee. Also, use of the loan is only available on homes in areas defined by the USDA as “rural”. So most areas of Johnson County Kansas would NOT apply. It does however apply to the outlying areas of Spring Hill KS, Gardner KS and De Soto KS, which are areas in which I sell real estate. You can go here to get a good view of the southern and western portions of Johnson County Kansas that qualify.

A few other important notes with the USDA Rural Development Loan Program… The USDA is not actually funding the loans, they are simply backing (insuring) the loans for the local investors who make the loans. I’ll save you the math but at least 85% of the loan is insured, which allows the lender to more easily sell the loan off to the secondary market – this practice is what allows you to access to the best possible interest rates and lowest loan costs.  I’ve heard that borrowers with credit scores below 600 could have trouble qualifying for the loan and would certainly be subjected to a much more grueling loan approval process.


Posted by Jason A. Brown

There’s More Than Just LOWER Prices To Consider When Purchasing Kansas City Real Estate

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Checking The Pulse Of The Kansas City Real Estate Market

9 out of 10 Kansas City home buyers tell me that locating a home at a PRICE they can justify is the most important factor in their home search. I can easily show those nine how that can be flawed thinking. We are seeing historically LOW interests rates and rates that I may never see again in my lifetime.  Today’s interest rates are so low in fact that they need weighed just as much as a home’s price when making the decision whether to purchase. Don’t believe me? Then check this out…

Scenario: Over the next 18 months, prices decrease by 5.0% but interest rates increase by 0.5%:

123 Oak – Current Market:
123 Oak – Future Scenario:
Home Price is $200,000 Home Price FALLS 5% to $190,000
Interest Rates are 5.0% Interest Rate RISES 0.5% to 5.5%
Monthly Payment = $1,074 Monthly Payment = $1,079
Note: monthly payments above include principal & interest only (no property taxes, homeowner’s insurance, etc.)

So using the above scenario, let’s say I take you out and we locate the perfect $200,000 home. It even has a jetted master bathroom corner tub (that your spouse loves) but you tell your spouse, “I wear the pants in this family and I won’t pay a dollar more than $190,000.”  All this despite the fact it’s the perfect home and I show you the market stats indicating the home is priced perfectly in our current Kansas City real estate market. You interject, “It’s not a deal, if it’s not a steal. We’ll wait to see if we can buy the home later for 5% less”.

Well that home sells the next day, your spouse leaves you and the home search is over. 18 months later, you’ve reconciled with your spouse and we locate an identical home, in the same subdivision on the same type of lot, etc. Both homes even face west.  Everything is exactly the same as the home you lost out on… except this home’s corner tub isn’t jetted. Your spouse doesn’t say a word on this given day, but you know you’re never going to hear the end of it… You tell me and your spouse that everything is going to turn out rosy because you’re going to be able to purchase THIS home for just $190,000. At this point, I break the following news to you: Although we can buy the home for 5% less than the same home 18 months ago,  interest rates have gone up  from 5.0% to 5.5%. So your $190,000 home with a 5.5% interest rate has virtually the same payment – actually $5 higher – as the guy who paid $200,000 but got a 5.0% interest rate – oh, and don’t forget the corner tub on your home isn’t jetted. Or that you lost out on the mortgage interest deduction the last year and a half. Or that you had to deal with that landlord and the neighbors while living in that rental.

I’m not kidding people. If you were to wait to buy and home prices DROP 5% but interest rates RISE just 0.5%, you have a wash on your hands. The scenario works the same if home prices DROP 10% but interest rates RISE 1.0%. See the pattern? And if you don’t think interest rates could be at 6% in 6 or 12 months, I have history to show you otherwise. The Fed even has plans to stop buying mortgage-backed securities in the next month, which some analysts are predicting could jump interest rates a FULL PERCENT by the end of 2010. Home prices aren’t in a free-fall here in the Kansas City area and I can’t imagine any scenario where home prices would drop 10% quicker than interest rates would go up 1%. They may not fall at all. But I bet interest rates rise. Do you agree?

If you think interest rates will rise, here’s one last scenario for you to ponder…  If you wait 2 years and a $300,000 home (today) can be purchased for $270,000 (a 10% drop) BUT interest rates go up from 5.0% (today) to 7% at that time, your monthly payment would be $187 HIGHER ($1,610 versus $1,797).  This despite the fact that you bought the home for $30,000 less by having waited! Oh, and I haven’t even mentioned the tax credit that’s here today but gone tomorrow. So, do you still want to wait to buy that perfect home?

Posted by Jason A. Brown

The Good, The Bad And The Ugly Real Estate News In Kansas City

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Checking The Pulse Of The Kansas City Real Estate Market

The good news with the Kansas City Real estate market is that Freddie Mac reports that average 30 year interest rates dipped to 4.97% nationally last week. Interest rates below 5% are absolutely amazing and too many of us take today’s low interest rates for granted. One day, poof, they’ll be gone.  I’m going to do a post sometime soon that shows just how much a borrower  saves by purchasing with a 5% interest versus the 9% rate I had on my first home in the early 1990’s. The difference is truly astounding. Anyhow, so what other good news is there out there, other than the home buyer tax credit (that is keeping home sales moving along with smoke and mirrors)?  I had to dig a little but I found that existing home sales in the Kansas City metro rose around 8% in January (compared to 1/09). That’s certainly good news but comes with the caveat that it’s being compared against a month that was just plain horrid.

The Good, The Bad & The Ugly

So moving on to the bad news, my National Association of Realtors reports this week that existing homes sales fell an unexpected 7.2% in January (compared to 1/09).  The sales rate in January was the lowest since June of last year. Ouch. And now for the ugly news… New home construction sales nationally fell 6.1% in January (compared to 1/09) to reach the lowest number of home sales since records started being kept back in 1963. Local new home sales news was bad too, with the number of new home sales falling 28% in January (compared to 1/09).  In case you couldn’t tell, it’s still a Buyer’s market out there. I can’t wait until this market turns and I get to write hundreds of posts about how great the market is. Ah, the good old days…

Posted by Jason A. Brown

HomePath Financing With No PMI Is An Option On Fannie Mae Owned Kansas City Foreclosures

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Checking The Pulse Of The Kansas City Real Estate Market

Whether I’m representing smaller local banks or large national banks, I really enjoy selling bank owned properties in Kansas City. The process is one that comes second nature to me and knowing the process inside and out also comes in very handy when representing buyers in their purchase of a bank property. In my experience, these transactions are simplified because the homes are already through all of the nonsense of the foreclosure process, the lender’s want them off their books, there’s little problem negotiating a close date, the buyer already knows they’re not going to be asking for any inspection repairs, etc.  Buying a Fannie Mae foreclosed home also just became a little easier for many home buyers in Kansas City.


Fannie Mae Foreclosures are homes that had borrower loans that were backed by Fannie Mae and have since gone through the foreclosure process. This is not just some foreclosure niche either. Fannie Mae owns or backs HALF of the mortgage loans being written in our country today, so it’s a lot of homes were talking about that fall under Fannie Mae control. To help deal with moving the high number of foreclosures off of their books, Fannie Mae created the HomePath Mortgage Program as incentive for home buyers to purchase these homes. This program allows Kansas City home buyers to purchase a Fannie Mae foreclosed home with clear-cut advantages not found with most other lenders/loans and homes.

I want to be clear that a Fannie Mae foreclosed property can be purchased WITHOUT going through the Fannie Mae HomePath program. But there are a lot of reasons borrowers should consider the HomePath program. For starters, borrowers will only need a 3% down payment. FHA loans require a 3.5% down payment and conventional loans require 5%. There’s also a relaxation on explaining where the down payment came from… it can come from your Aunt Topsy, your savings account, your riverboat winnings, a loan from your boss (seriously), etc.  There are flexible options on the type of loan, as borrowers can go with a loan that’s a fixed rate, adjustable rate or interest only (I’m going to bite my tongue on discussing how adjustable rate and interest only loans are part of what got us in our current financial mess). Borrowers can qualify with less than perfect credit and there are investor loan options too, although investors would be required to have a 5% down payment, among other things.

Another big benefit is there are no required appraisal fees. Probably most important of all, Kansas City home buyers can get a HomePath loan with NO PMI! So you can have less than a 20% down payment and not have to pay the mortgage insurance premium other types of loans require. This is typically one of the biggest negatives when buying a home, so not having to worry about PMI would save borrowers a TON of money with lower mortgage payments. To give you an idea of what’s out there, here’s a list of Johnson County Kansas homes that qualify for HomePath financing. If you find a great home, you can then search that address directly from my home search page to verify it’s still available. Also, be aware that only a handful of local Johnson County Kansas and Kansas City lenders are approved HomePath lenders. Check out the following list of approved lenders at the time of this writing…

CapWest Mortgage

Century 21 Mortgage

Champion Mortgage

CitiMortgage

CMG Mortgage, Inc.

Coldwell Banker Mortgage

Colonial National Mortgage

ERA Mortgage

First Place Bank

Flagstar Bank

GMAC Mortgage

MetLife Home Loans

Nationstar Mortgage

PNC Mortgage

Prospect Mortgage

PHH Mortgage

Quicken Loans

Weichert Financial Services

Posted by Jason A. Brown

Are You Adequately Insured Should An F-5 Tornado Rip Through Your Kansas City Neighborhood?

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Checking The Pulse Of The Kansas City Real Estate Market

Getting homeowner’s insurance in place is one of the important aspects of buying a Kansas City home. I always remind my home buyers early on to shop carriers and insurance rates because they can save a lot of money by doing so. But in most cases the response is they’ll just contact their current insurance agent and have them get the info to their lender. At this point I mention that since  they’re already going to have to go through the process of setting up a new policy, there’s no time like the present to check out the insurance options available — and with rates fluctuating greatly in recent years, it makes a lot of sense to shop around.


Getting at least 3 quotes is advantageous because all insurance companies handle insurance quotes differently. I’ve been there and  at times it can feel like you’re comparing apples and oranges, so asking questions whenever you don’t understand something is also important. At one point I found out that my insurer would no longer cover roofs for wind and hail damage… yes, I switched companies at that point. “Replacement coverage” is very common and is designed to cover the replacement cost if you had to rebuild the home from scratch — including personal property in the home.  This may seem like common sense insurance but there are varying degrees of under-insuring and over-insuring, so be sure you understand just exactly what you’re getting.

Other common considerations include making sure you add coverage for outbuildings, detached garages, barns and pools.  Also be sure you have coverage for luxury items in your home, like a diamond ring or a fur. If homes in your area are appreciating at a great rate (something they used to do  – and will again at some point), you need to make sure you’re amount of coverage is keeping up with the appreciation rate.  One item I’m sure many homeowners often overlook is that if you finish your basement, you need to contact your insurance agent to increase your coverage.

I’ve seen quotes that are double from one insurance company to the next and you never know the motivation (or lack thereof) of any particular insurance company. They could be looking to add policy holders or they could be constricting. As with auto insurance, the higher you’re willing to go on your deductible, the lower your annual policy premium will be.  So if you want your policy deductible to be low enough to cover a broken window, you shouldn’t expect you’re annual premium to be low as well. You can find reductions in insurance premiums by having your vehicles with the same insurance company and by installing a security system. There are many other ways to get reduced premiums, so be sure to ask what the options are. Oh, and your credit scores is likely to play a role in how much your policy will cost you.  Insurance companies have found a link between homeowner’s with high credit scores  making fewer claims. So there’s all the more incentive to improve that credit score when buying a home.

If you’re shopping for homeowner’s insurance, here’s a few insurance companies you can check with…

State Farm Insurance
All State Insurance
Farmer’s Insurance
GEICO Insurance
Nationwide Insurance
American Family Insurance

And here’s an interesting site for comparing insurance companies that I’ve seen receive some good online reviews…

2Insure4Less.com

Posted by Jason A. Brown

FHA Loans Will Be More Expensive And Harder For Kansas City Home Buyers To Get

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Checking The Pulse Of The Kansas City Real Estate Market

A late 2009 poll of Realtors who are a member of the National Association of Realtors indicates that 39% of  mortgage loans in recent months were Federal Housing Administration (FHA) loans. So it’s important to note that new FHA guidelines are planned to go into effect sometime this spring. These new guidelines will make it more complicated to get a FHA loan and a little costlier too.  On one hand, I don’t want to hear of anything that makes it more restrictive for Kansas City home buyers to get a loan. On the other hand, keeping FHA on solid ground is absolutely essential to the housing market, even if it means some buyers will no longer qualify for a FHA loan.  Keep in mind that FHA provides the majority of loans to first time home buyers — and nearly half of the home sales were seeing today ARE first time home buyers. “Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important… When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for under served communities.” — FHA Commissioner David Stevens

The big changes that are coming include a requirement that home buyers have a  minimum 580 FICO score to qualify for the standard 3.5% minimum down payment. If your FICO score is lower than a 580 you MUST have a minimum 10% down payment. This may seem like a bad idea to some, but the low-down and no-down home loans that were made the past decade played a huge role in the number of defaulted loans we’ve seen.  So if you have a 570 credit score you’ve shown you are a huge credit risk. Giving out loans is all about risk management (or should be) and, by requiring a 10% down payment, FHA will either (a) run off the buyers most likely to default on a loan or (b) hold the buyers hand to the fire by requiring a 10% down payment. It will certainly be a whole lot harder for a borrower to throw their hands in the air and walk away from a 10% down payment than it was to walk away from a 3% down payment (which is all that was required as recently as a year ago).  Then again there may not be many of these 10% down loans anyhow because I don’t know any lenders handing out loans to buyers with credit score in the 500’s.

Another of the new guidelines is that seller paid concessions may NOT exceed 3% of the sales price of the home — the maximum allowed previously was 6%. This means on a home that goes under contract for $100,000, a buyer can not get the seller to pay more than $3,000 of the buyer’s allowable closing costs. The old system would have allowed $6,000. But here’s why this change should matter very little… Very few sellers were willing to pay more than 3% of a buyer’s closing costs anyhow.  Still, I’ve heard many other agents screaming this could be a huge problem for borrowers. But even if a seller were willing to pay 4, 5 or 6% of a buyers allowable closing costs, I simply can’t see any appraiser allowing the home to appraise for the purchase price PLUS a huge amount in seller-paid closing costs. To be honest, you’re asking for trouble even getting a home to appraise for ONE PERCENT more than the purchase price in today’s market.

There’s one other change guaranteed to have an effect on ALL borrowers getting a FHA loan. The up front mortgage insurance premium (MIP) required on FHA loans will increase from 1.75% to 2.25%. On a $100,000 mortgage, this means the up front fee would increase from $1,750 to $2,250 – thus you can expect a $500 increase for every $100,000 of mortgage. As always, buyers will still be able to finance this amount into their loans — but it’s a real cost increase when getting a FHA loan going forward. If you’re considering getting a FHA loan, these are all factors to take into consideration and discuss with your mortgage loan officer. Again, these guidelines are estimated to go into effect sometime later this spring.


Posted by Jason A. Brown

New 2010 Good Faith Estimates Haven’t Led To Self-Inflicted Injuries In Kansas City

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Checking The Pulse Of The Kansas City Real Estate Market

The new 2010 Good Faith Estimate has been in effect for more than a month and I’ve yet to see any mortgage lenders, borrowers or real estate agents climbing buildings or jumping off bridges. The changes do however have people talking and will certainly change the way loans have been handled over the years. For the best mortgage lenders, these changes won’t have the same drastic effect they’ll have on shady or unorganized lenders. The lenders I know well have also taken on the changes head on in educating agents and borrowers alike about the changes.


The January 1st 2010 Real Estate Settlement Procedure Act (RESPA) has certainly made the Good Faith Estimate a lot more good faith — and a lot less Que Sara, Sara. Lenders will have to educate borrowers on what’s being charged for their loan, why they’re being charged each amount and in many cases, who exactly is charging the fees. I’m expecting it will clearly educate borrowers on the risks of ARM loans and other creative financing methods that are at the root of our current financial mess. I’ve read many places online that it will make it very easy to compare the Good Faith Estimate that was given out early in the process to the actual HUD-1 Settlement Statement that will be produced  for the real estate closing.

The new Good Faith Estimate requires that mortgage lenders show all the key loan terms and closing costs to borrowers. More importantly, if the lender half-asses a Good Faith estimate, the lender could be on the hook for overages in many instances. I’m thinking this will give home buyers some good assurance that the Good Faith Estimates will be reasonably accurate and minimize or eliminate the junk fees seen all too often over the years. Finding junk fees on the HUD-1 has put many a borrower in the difficult circumstance of not being able to fight it because they’ve already closed on their home sale.  And, if you’re thinking ahead like me, this seems likely to lead lenders to work closely with closing agents to build a comfort level that the fees quoted early on are  more-or-less guaranteed come closing time.

Different aspects of the new Good Faith Estimate (GFE) are defined at different tolerance levels. The one I’ve commonly heard referred to is the 10% tolerance of quoted fees. This applies to settlement service fees where the lender specifies the provider to be used in the transaction. But there’s also many that fall under zero tolerance, including fees the lender was in direct control of when they were listed on the GFE – such as the lender’s own origination fees, underwriting fees and processing fees.  Then there’s the unlimited tolerance for items that the borrower is in control of – such as title insurance, home inspections and homeowner’s insurance. You can see how the lender can’t be expected to guarantee the latter.

It’s worth noting that many lenders believe any money saved by the new GFE could be lost due to the extra time and costs required to make sure they are in compliance with the changes — all costs they’d likely want to pass on to consumers. But if lenders start erring on the safe side, competitors who are on the ball and quoting accurate fees and costs will undercut them and secure the borrower’s business. So I find it unlikely that lenders will simply quote high amounts on the GFE, because if they do they may go  out of business – due to having no business. The new Good Faith Estimate is a 3-page document  that provides a break down of loan costs in layman terms. ALL mortgage lenders are required to use  this document going forward and you can check out some of the most common GFE questions here on these 57 pages of frequently asked RESPA questions.

A down side that I’m pondering is whether lenders will refuse to give borrowers a Good Faith Estimate early in the home buying process. If they refuse until a buyer has applied for a home loan and gone under contract, this would keep a borrower from really knowing the costs of the loan until they’re already under contract. Although I could argue that’s no worse than what’s been dealt with before these changes were made. We’ll need several more months to see how things play out and make any definitive assessments of the effect of the new GFE. Irregardless, it’s as critical as ever that borrowers work with a reputable and trust-worthy lender. If you’re looking for a good lender to finance your home purchase or refinance your current home, here are three lenders that I would trust to handle my own Kansas City mortgage loan…

Jill Underwood with Pulaski Bank
Email: jill@jillunderwood.com
Phone: 913-915-0150
www.JillUnderwood.com

Alan Scarpa with National Bank Of Kansas City
Email: ascarpa@nbofkc.com
Phone: 913-253-0189
www.nbofkc.com

Rick Woodruff with Metropolitan Mortgage Corporation
Email: rick@e-metropolitan.com
Phone: 913-642-8300
www.emetropolitan.com
Posted by Jason A. Brown

You’ve Defined The Johnson County or Kansas City School Factors Most Important To You. Now What?

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Checking The Pulse Of The Kansas City Real Estate Market

If you have kids and are considering a move to the Kansas City or Johnson County Kansas area, the first thing you’ll want to do is write down the school factors that are most important to your child’s success and happiness. Even if you don’t have school age children, the schools surrounding any metro area school can certainly play a role in the area’s real estate values. So once you’ve defined the school factors that are most important, where can you go to  locate potential schools and/or check up on the schools surrounding the areas you’re looking into?  For starters, you can check out  PublicSchoolReview.com and, once there, you can enter the area or schools you want to research. You’ll find tons of information on the school, the school district, student ratios, faculty information and more. But that’s just one of the helpful sites out there. Another is GreatSchools.org and this site provides a 1 to 10 rating system for each area school, plus parent ratings and reader comments. Another site to check out is SchoolDigger.com, which also has school ratings but its ratings compare one school to all the other schools in the state. The site also includes enrollment figures going back many years, which can be helpful when analyzing a particular area or school.

Kansas City & Johnson County KS Schools

Kansas City & Johnson County KS Schools

Another interesting school site is LocalSchoolDirectory.com. Although the site doesn’t include reviews, it does have detailed information and some nice graphs on the number of students per grade, student race and student gender. SchoolMatters.com is one of the oldest of all school sites and an old favorite, however it’s going through some changes as its been taken over by a non-profit group. Still, they’ve managed to maintain the great info they’ve always had on the site, including reviews, ratings, test scores and maps. Most important of all, you may want to see the facts and figures straight from the state, without commentary. If so, head on over to the Kansas Department of Education or the Missouri Department of Education.

Posted by Jason A. Brown

Facebook: Mixing Kansas City Business With Pleasure

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Checking The Pulse Of The Kansas City Real Estate Market

In keeping abreast of the best marketing avenues, I’m always interested in knowing which national sites are receiving the most attention. I’m sure most of us would expect Google to be the #1 visited web site in the country — and indeed it was for the week ending 1/2/2010.  You might have even correctly guessed that Facebook.com was #2. But I’ll bet you wouldn’t have guessed how close the results were between the two. Google had 6.9% of the market share and Facebook came in at 6.6%!  The huge market share pulled in by Facebook is impressive and if you’re in a business where referrals are important, not making yourself available on Facebook is a very questionable act. The marketing and network opportunities grow by the minute on Facebook and when I jumped in a couple of years ago I had no idea how much fun it could be to mix business with pleasure.  Many still find the act of mixing business with personal lives on Facebook to be a huge dilemma. I disagree and find Facebook makes for very entertaining business. I would agree that it’s different and not the way business used to be done. Want to connect on Facebook? Find me here… http://www.Facebook.com/KansasCityRealEstateAgent

Here are the rest of the sites receiving the majority of attention for the week, according to Hitwise…

1. Google 6.88%
2. Facebook 6.62%
3. Yahoo! Mail 3.75%
4. Yahoo! 3.44%
5. MySpace 2.66%
6. YouTube 2.15%
7. MSN 1.79%
8. Windows Live Mail 1.61%
9. Yahoo! Search 1.18%
10. Bing 0.96%
11. eBay 0.93%
12. Gmail 0.87%
13. AOL 0.71%
14. AOL Mail 0.55%
15. Amazon.com 0.51%
16. My Yahoo! 0.50%
17. Google Image Search 0.45%
18. Wikipedia 0.41%
19. Yahoo! News 0.36%
20. AdsZooks 0.29%


I always find it interesting that GMail isn’t counted in total with the main Google results. It’s on the GMail.com domain, so I’d think it should be. Yahoo is the same way as Yahoo Mail isn’t counted with Yahoo or Yahoo Search. If these were aggregated, Google’s presence would be much more than a 0.3% differential ahead of Facebook. Then again, if you were to combining things, a combination of  Yahoo, Yahoo Mail and Yahoo Search would surpass Google’s total by having more than 9% market share. And in looking over the top 20 list of most visited sites, what the heck is AdsZooks?

Posted by Jason A. Brown

Eye-Opening Details On FICO DAMAGE POINTS That Have An Effect On Kansas City Home Loans

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Checking The Pulse Of The Kansas City Real Estate Market

You’ve heard me mention many times how important your FICO score is when it comes to buying a Kansas City home. The problem has always been that no one knew exactly how your FICO score was formulated.  In other words, we KNEW our FICO score but we didn’t know what exactly we’d done – or were about to do – to damage it (or improve it). Yes, there were educated guesses and common sense analysis came into play. There were even some crazy case studies done to see how certain credit factors impacted one’s FICO score. It’s great that there were a few out there willing to take one for the team and damage their own FICO score to provide us beneficial info.  But I’ve always wanted to know more about the closely guarded FICO algorithm. Well recently some of the secrecy was removed when Fair Isaac Corporation released some hypothetical FICO hit examples. They call them Damage Points and here’s a look at a chart that’s  been circling the internet…

Kansas City Credit Score Damage Points

Kansas City Credit Score Damage Points

You can see in the above chart, they have used two hypothetical FICO scores — one person starting with a 680 FICO score and the other with a 780. The first thing I noticed was the common theme of the person with the higher initial score taking a more severe hit for an identical infraction.  For example, notice how a foreclosure would knock at least 85 points off the 680 score BUT 140 off the 780 score!  John Ulzheimer, a credit industry expert, also did a study on his own FICO score using the FICO Score Simulator. If you go there, you must buy a credit report to test it out yourself. But if you want some free results, John Ulzheimer’s findings on his own FICO score concluded: a 10 point FICO hit for applying for a new store credit card; a 40-75 point FICO hit for missing a credit card payment (on a card that was current); a 50-100 point FICO hit for maxing out ALL credit cards; a 195 to 255 point FICO hit for declaring Bankruptcy. Very interesting stuff! You can also view the rest of John Ulzheimer’s findings.

Posted by Jason A. Brown