Investor · Los Angeles, CA · Member since 2011 · 30 posts · 9 votes
As most of you know, one of the Fannie Mae requirements for financing properties 5 to 10 is that you need a credit score of at least 720.
The trouble I am running into, is that the more properties I purchase the lower more score becomes, due to the amount of new fiananced properties.
I have seen my score drop from the high 700s, to a level that is just over 730. In reviewing my credit report, the main reason is that all of the new rental property loans are contributing to a higher overall balance for my revolving credit.
Some points:
- No late payments
- Only 2 credit cards, with revolving credit and less than 30% used
- No other debt besides the 2 credit cards, primary residence loan and 1-4 investment properties.
How do you seasoned investors maintain a score higher than 720 and continue to conventionally finance properties?
Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes
13y
You have an opportunity to get some points back by paying the balances on your credit cards down. Hard to say how many points you could get, but 1% of use will help you a lot more than being around 30%.
Also, limiting inquires, as already discussed can help as well. I do realize this is tough to do, given exactly what's happening. If you're dead set on buying more and trying to get your score up, the next time you get your score up, buy as many as you can while it's up. Of course, make sure the deal is right. That way, with 1 credit pull, you might be able to acquire multiple homes without as much collateral damage. Check with your lender on that, they should know how viable this idea is.
Personally, I hate the scoring models. About a year ago, the wife's credit had 3 earrant deragatories on her report. We were able to get them all removed. However, when they were on the report, she went from a 780 or so to a 620.
For the heck of it, I figured I'd see how many on-time payments she made on the report. On her report she had somewhere between 9,000 and 10,000 on time payments, with 3 lates. She was rated in the bottom 30% or so of people to lend to.
To beat the dead horse, she paid on time 99.7% or so of the time, but was a worse risk than 70% of the population. That doesn't pass the smell test.
Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
13y
Kelvin K. - I am in the same boat, just two years ago credit in the 780's watching it slowly decline as I too have crossed the 5+ mortgage threshold. Also no late pays, other debt, etc.
I don't know that there is a good defense in this scenario other than to keep making payments on the mortgages/debt as required. If you do go below the 720 which is a firm number on the fannie loans, you will be surprised at what you can find at local banks, even without title seasoning. Until then just keep buying!
Investor · Los Angeles, CA · Member since 2011 · 30 posts · 9 votes
13y
Travis Sperr - yes, I agree. There isn't much that I can do, since I am responsible with all of my lines of credit and do not have any excessive open lines of credit. I'll just continue to pay on time.
Bryan Hancock - 4 properties were financed within a year. They were spread about 1 month per finance e.g. Property A - hard money 1st month, conventional refi 2nd month.
So I guess there is a credit pull at least every month or two. Since each property has effectively two loans to complete the transaction.
Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes
13y
You have an opportunity to get some points back by paying the balances on your credit cards down. Hard to say how many points you could get, but 1% of use will help you a lot more than being around 30%.
Also, limiting inquires, as already discussed can help as well. I do realize this is tough to do, given exactly what's happening. If you're dead set on buying more and trying to get your score up, the next time you get your score up, buy as many as you can while it's up. Of course, make sure the deal is right. That way, with 1 credit pull, you might be able to acquire multiple homes without as much collateral damage. Check with your lender on that, they should know how viable this idea is.
Personally, I hate the scoring models. About a year ago, the wife's credit had 3 earrant deragatories on her report. We were able to get them all removed. However, when they were on the report, she went from a 780 or so to a 620.
For the heck of it, I figured I'd see how many on-time payments she made on the report. On her report she had somewhere between 9,000 and 10,000 on time payments, with 3 lates. She was rated in the bottom 30% or so of people to lend to.
To beat the dead horse, she paid on time 99.7% or so of the time, but was a worse risk than 70% of the population. That doesn't pass the smell test.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Amen Ed O. I had a similar problem earlier this year and my score dropped from about 805 to 620 or so. Completely nucking futs. After many consultations with credit experts in town and several threatened suits (this was during a purchase contract where credit was REQUIRED) we got the offending company to admit there was fraud involved and they removed it.
You may also try mixing small regional portfolio loan product into your purchases to avoid reporting. You'll need to see who won't report to the bureaus and thus sap your score. They'll likely still require a personal guarantee.
Portfolio loans could provide a bridge to longer-amortization FNMA loans later on with favorable rates and terms. You'll have to float the interest rate risk until you can refinance on FNMA loans, but dems da breaks. You'll also have higher constants because the amortization periods are likely to be shorter. The bank will also have a bullet at some point so you'd need to navigate this carefully.
Real Estate Investor · Denver, CO · Member since 2012 · 83 posts · 17 votes
13y
You want to hear a 'how stupid is our credit rating system' story?:
My wife and I went under contract on our first investment property about a year ago. Combined income for us is over $200k. My credit score was about 790 or so at the time. Her's was lower and she had a bankruptcy and foreclosure on in from a previous marriage about 7-10 years ago (not sure about the exact dates of BK and foreclosure.
So we went to get a loan, thinking that any bank would rather have to signors on a loan--especially since we both earn over $100k. We are going over the details and it turns out that my wifes lower credit score cost us a bout a 1/4 point on the interest rate on the loan.
So we just removed her and put only me, and my rate dropped.
Can't see how that makes sense. Isn't having her (and her income) be additionally accountable for the loan better than having only me?
Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes
13y
Erik Kubec
The part about 2 borrowers and 2 incomes being worse than one has always blown my mind too.
It's amazing how much easier it is to buy a car with 0 down than to buy a home with 20% down. I've long thought the appraisers and title companies have done a great job at forcing costs and procedures to exist so that their existence and ability to charge fat fees could remain forever. Kudos to them I suppose.
Residential Real Estate Broker · San Jose, CA · Member since 2010 · 17 posts · 0 votes
13y
Kelvin, Bryan asked a very astute question regarding how far apart the new loans were spaced.
It is commonly accepted knowledge that credit scores drop in response to newly issued credit. So the more your accounts "age," the more your scores may recover. I say "may," because scores depend on a multitude of factors.
Another important part of the "algorithm" to pay attention to is your credit utilization ratio. Your scores will be lowered by a high utilization ratio. Manipulating your ratios, to create lower utilization of available credit, can also help to push your scores back up.
Dan
*Disclaimer: Not to be construed as legal advice. For legal advice, please consult with a licensed attorney.
SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
13y
The average age of accounts takes a big hit when you have that many new credit lines (including mortgages) start reporting.
This is also true of re-finances. I recently did a simple refinance (I'm over the 4 mortgage limit, but for some reason it didn't matter on this streamlined refinance of a rental),,went off without a hitch, the new and old mortgage were both with Citi,,but its a new account number, and a new loan,,so my average age of accounts went down.
I was in the process of a "real" refinance from hard money to a conventional, which got screwed up because my mid score went below 720,,,(paid down some cc's and got it back up)
It is all a big game,,but there are ways to get hard inquiries off of TU, and Equifax (mortgage inquiries on equifax you can't get off however)
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
13y
wow, i should consider myself lucky. i started 3-4 yrs ago at around ~805. 7 mortgages later (about 2 per year) i am around 790. dont make nearly over 100k.
you never know what these credit companies are thinking..
New York City, NY · Member since 2013 · 17 posts · 0 votes
13y
Not easy to say how many points you may get, but 1% of use may aid you much more than being around
30%. In Addition, limiting inquires, as previously discussed can help as well. I do recognize this is difficult to do, given just what is occurring. Purchase as much as you can while it is up, if you're dead set on purchasing more and striving to really get your score up, the very next time you get your score up. Obviously, make certain the deal is appropriate. Check with your lender on that, they ought to know how feasible this notion is.