I have noticed since resuming my business on June 10 that there are many that have had their credit scores affected by the pandemic with family lack of income to pay their most important credit card bills, mortgages, and even doctor and hospital bills.
Most companies, if you ask, have allowed hardship and deferral programs for a multitude of families and individuals who have not been able to come up with the monies to pay their bills. Fair Isaac and Company is the sole monopolizing company that determines your credit scores when receiving information from the 3 major credit reporting agencies, Experian, Trans Union, and Equifax.
They receive the reports of your payment and credit profile history information from all your credit card companies, banks, mortgage companies, major retailers who issue credit cards, car loans and leases etc. that is reported and deciphered creating your credit scores and credit profile determining your credit risk as a borrower.
Credit scores can range from 350 to 800 as a perfect score and can go and I have read up to 900, which I have never seen on anyone’s credit history.
However, lately with respect to hospital bills, Judgments, and liens that have been watered down or removed Fair Isaac and Company as of June 2020 are now going to provide lower and more accurate credit scores, especially lowering those with scores of 600 or less separating and widening the gap between those that have attained superior credit and those that do not.
However, medical debts using FICO’s profile 9, didn’t consider unpaid medical bills as an item affecting one’s credit. So as of 2018, credit reporting agencies were no longer going to include any medical collections on your credit report up to the first 90 days, until your medical debt was at least 180 days past due.
Another point: even if your medical bill does go into collections, the latest credit scoring formulas from FICO and Vantage Score wouldn’t penalize you as much for having past-due healthcare bills. However, the FICO scores needed for Federal Housing Authority guaranteed loans today went from a required 580 score to a 680 score as COVID-19 has changed the present employment perimeters and business environment, making job security somewhat a thing of the past.
Banks have increased the risk factors and are more risk-averse than ever before because of the decreased demand and income in a certain business, such as restaurants, airlines, and the hotel hospitality sectors and don’t know really have a handle on whose job or business might be gone in 6-12 months or reduced wages might occur from the impact of the ongoing pandemic.
So, unfortunately, those who would have normally qualified in the past can no longer hope to get into even their first starter home let alone their dream home today with the current and very strict and prohibitive lending requirements.
Moreover, even refinancing your mortgage will also follow the same scenario and extra costs, I have seen up to 15% and/or points and surcharges that will be added for those who may qualify, but are on the cusp of having poor, fair, or good credit scores.
Banks and lending institutions are truly in control of many potential borrowers who are at their mercy and at the same time will be making a major boatload of extra money to cover themselves in the event of a default leading to a foreclosure or short sale.
So, unfortunately, there will be a slew of renters flooding the market over the foreseeable future and rental investment property should do quite well and the R.O.I (return on investment) will be excellent depending on the time of purchase.
It will be very crucial to crunch the numbers right up front and know in advance how well-positioned your credit is. Also doing your research and homework to know what the rental market and comparable rents are in the area where you are purchasing so you will have a very clear picture as to whether or not the income will pay all your expenses.
Lastly, whether there will be at least a 4-6 percent bare minimum profit in the beginning after all your expenses are paid, will be a crucial factor in analyzing what to purchase. The lending institution will be very conservative too since it is an investment property and not your primary residence and will usually only consider 75 percent of your rental income and with a 25 percent loss factor for the time that the property would and could be potentially empty in between current and future tenants.
Banks are no longer sticking their necks out and taking any risks when lending and will want you to have 6-12 months of available monies in the bank in the event you will need to pay the mortgage when you are short on rental income. We can offer a consultation and sound advice about fixing or increasing your FICO credit profile and scores on Experian, Trans Union, and Equifax as well ways that you can improve it yourself, or as they say DYI (do it yourself) as well as also provide some information on investment properties or anything else related to selling, purchasing, renting or leasing residential or commercial properties. So call me at your convenience on the number listed below.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). Just email or snail mail (regular mail) him with your ideas and suggestions on future columns with your name, email, and cell number and he will call or email you back. For a consultation, he can be reached by cell: (516) 647-4289 or by email: [email protected] to answer any of your questions or concerns.