The three numbers that make up your credit score play a surprisingly big role in the home-buying process. Since most buyers need lending to make their dream home a reality, paying close attention to all things credit is time well spent. Read on to learn more about how your score influences so much about your quest to buy a new home.
How Do I Know What Score is Needed?
With mortgage lending, it's difficult to pin a specific credit score down, at least for conventional lenders. The reason for being so vague has to do with the fluctuating lending market in general and with other applicant factors that are taken into consideration. It would be unfair to allow applicants to believe that all they need to be approved for a mortgage is to have a score of 750, for example. That being said, most conventional lenders like to see applicants in a mid-600 range and above, if possible.
For government-backed loans, the score requirements are a bit more transparent. Residential loans offered by the Veteran's Administration (VA), the Federal Housing Administration (FHA), and the US Department of Agriculture are known to focus their marketing to those with scores as low as the 500s.
Why High Scores are Better
Not only can applicants be disqualified before they've begun if the score is too low, the higher the score the lower the interest rate might be. Scoring a loan with an interest rate that is a mere percentage point lower can result in savings of thousands of dollars on the total cost of the loan. Moreover, you have more buying power with a higher score because the interest affects your monthly payment – that's because the debt to income ratio (DTI) plays a huge part in the underwriting process. Finally, having a higher score usually goes hand-in-hand with a history of making good credit decisions. Lenders view credit reports and look at your total debt load, timeliness of payments, length of credit history, and more.
Tips to Improve Your Score for Mortgage Approval
To learn more, speak to a lender.Share
18 May 2019
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