What is a Good Credit Score and How Does It Affect Buying a Home?
Your credit score.
No single number can play as great a role in your real estate future as these simple three digits.
Fair or not, it’s a judgement, an algorithmic judgment, of your creditworthiness. One of the deciding factors as to whether or not a bank can trust you to pay off a mortgage loan.
So, when you are thinking about buying a new home, this score is one of the first things you need to stay on top of. In this post, we’ll explain what your credit score means and how it affects the home buying process.
What Is A Credit Score?
Simply put, a credit score is a number ranging from 300 to 850 that is calculated by three major bureaus (Equifax, Experian, and TransUnion) to determine how well you will be able to pay off a mortgage loan. The higher your score the better your credit history., Below are the different levels of credit scores:
750 – 850 Excellent
700 – 749 Good
650 – 699 Fair
550 – 649 Poor
0 – 550 Bad
Your score is algorithmically calculated on various elements of your financial history. The most common factors include your credit card utilization, age of credit, payment history, and derogatory remarks (e.g., negative collection reports or filing for bankruptcy).
Why Does My Credit Score Matter?
Your credit score is a prediction of how likely you are to be able to keep up with payments consistently and on time.
Even though you might be fully committed to paying back your mortgage, lenders have no way to objectively measure your internal determination and sticktoitiveness. That’s why they use your credit score (among other factors) to decide just how much of a risk they are taking when they loan you money.
A high credit score tells them that you are very likely to pay them back, so they can take the risk of extending a lower interest rate (which equates to lower monthly payments for you). If your score is low, the bank has to make up for the increased risk by charging you more in interest.
What Is a Good Credit Score for Buying a Home?
While interest rates and terms will vary from lender to lender, we can offer a general guide to what your credit score can get you.
For starters, if you are in the excellent credit range with a score of 750 or above, you will probably be getting the best possible interest rates from banks. After that, as long as you’ve got a score of at least 660, you will probably qualify for a home loan.
This doesn’t mean you can’t get a mortgage with a score less than 660; it just means that your options are more limited. An FHA loan, for example, is meant for buyers with low credit scores.,As long as their credit scores are above 580, you’ll they will only need to put 3.5% down. Any lower, though, and you they have to pay as much as 10% down.
We understand that credit scores for buying homes can get confusing.,If you are trying to get a better idea of exactly what you qualify for, let us help you get in touch with a lender today.