Homebuyer Credit Scores: What You Need To Know
If you’re looking at buying a home, it’s essential that you understand how your credit score plays into loan qualification. Lenders assess your creditworthiness by reviewing payments made on time, debt repayment history, and more – all of which can help determine your mortgage rate. According to Bankrate,
“Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.”
Your credit score is essential for your homebuying plans, especially when factoring in affordability and mortgage rates. The Federal Reserve Bank of New York reports that the average U.S. credit score for those taking out a mortgage is 765. Business Insider explains how your FICO score range can have an impact in terms of loan terms and interest rates.
“. . . you don’t need a perfect credit score to buy a house. . . . Aiming to get your credit score in the ‘Good’ range (670 to 739) would be a great start towards qualifying for a mortgage. But if you’re wanting to qualify for the lowest rates, try to get your score within the ‘Very Good’ range (740 to 799).”
The best way to learn more about how your credit score impacts your mortgage loan is to work with a trusted lender. FICO states:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.”
When looking to improve your score, Experian suggests focusing on the following:
- Payment History: Make payments on time and pay late charges quickly.
- Debt Amount: Keep credit usage as low as possible.
- Credit Applications: Refrain from applying for additional credit when buying a home as it can lower your score. ????
When you become ready to buy a home, get a lender’s help in determining your score range and what it means for each loan type. They can provide more information.
Bottom Line
The key takeaway from this blog post is that credit scores play an important role in the home-buying process. A good credit score can get you better loan terms and a lower interest rate, while a poor score may mean higher rates or even being denied a loan. Therefore, it’s important to focus on improving your credit score before entering the home-buying process. Reach out today for more information about how your credit score impacts your mortgage plans and what you can do to improve it. ?