Most individuals are aware that having a good credit score increases your possibilities of getting approved for a home buyer mortgage by guaranteeing to the lender that you will make the loan payment on time.
For this reason, many lenders have minimum credit score requirements for the loans they provide. However, do you know what your credit score must be to be eligible for a mortgage and purchase a home?
Although every lender is different, it’s important to know where your score lies and how it affects your mortgage request. Here’s everything you need to know about it.
What Is The Importance Of A Credit Score?
Your credit score, a triple-digit figure ranging from 300 to 850, is heavily influenced by your credit history. If you want to secure a home loan, your credit score is essential since it allows a lender to evaluate how you’ve managed debts and money in the past in a snap.
If you want to have a better mortgage condition, you’ll require a good credit score. Several aspects of your credit history have a greater impact on your score than others.
The following components usually determine your overall score:
· History of your loan payments
Your history has a 35% impact on your credit score because a lender may be hesitant to give someone his money who consistently pays late or skips payments.
· How much money do you owe on previous loaners
This influences about 30% of your credit score because a lender may be cautious about lending money to anyone already in debt.
· Credit history length
Length of credit history accounts for 15% of the total credit score. It’s always better to have a longer credit history.
· The account type you have
The type of account you have contributes to 10% of your total credit score. Although you don’t need to have every type, having different types of accounts in your past is beneficial.
· Any recent/new credit
It accounts for a total of 10% of your credit score. If you’ve got several new accounts on your credit report, lenders may be skeptical about lending you money. They could be confused as to why someone would open multiple credit cards or borrow money at the same time.
Your credit score influences the amount of interest you pay on a mortgage and the types of loans you’re qualified for.
For A Home LoanOr Mortgage, What Is A Good Credit Score?
There’s no need to stress about the credit score or history if you are paying for the house in cash. However, if you want to use a mortgage to buy a portion of your new house, your credit score will be more important.
The credit score you’ll need to get a house loan is mostly determined by the loan you’re asking for and the sum of money you want to take.
Credit scores are often higher for conventional mortgages than for government-backed mortgages. When a lender issues a conventional house loan, they take on extra risk, therefore, it’s critical that they only lend to those with good credit. A standard mortgage requires a credit score of roughly 620. However, if a borrower’s credit score is in the “Excellent” level, over 740, they will receive better conditions and rates.
But if the borrower has a lower credit score, they can qualify for government-backed mortgages such as the VA loans or the FHA lending program. With a credit score as low as 500, a borrower can qualify for an FHA loan, but they must pay at least 10% of the down payment.
What Effect Does Your Credit Have on Interest Rates?
If you want to pay less interest on a mortgage, you will have to have a better credit score since a lender will be more comfortable granting a mortgage with a score of 800 than someone with a 690 score. Because of this, the lender will take a lower interest rate on the mortgage.
With a lower credit score, you may be able to qualify for a cheaper interest rate based on the mortgage type you apply for. For example, if you apply for an FHA loan with a credit score of 500, you’ll need to pay back a higher interest rate. However, if you apply for an FHA loan with a credit score of 700, you’ll have to pay a lower interest rate. Conversely, if you apply for a conventional mortgage with a score of 700, you will have to pay a higher interest rate than that of FHA.
After You’ve Been Approved For A Mortgage, What Happens To Your Credit?
Your house loan will show up on your credit reports, which will have an impact on your credit score.In general, having a mortgage on your credit report is beneficial. There are a couple of things to keep in mind, though.
After you secure a house loan, your credit score will fall. Don’t be alarmed if your credit score drops after you apply for a mortgage. If you started with a high score, the fall will most likely simply be a few points.You’ll also see a significant increase in your score in a short period after you start to make consistent and timely payments. The lender that owns your house loan will record your payments to the credit bureaus when you begin to pay down your loan, eventually improving your credit score.
Get House Loan Advice From Financial Experts In Texas
Are you looking to buy a property in Texas? Prepare to pay a visit to Z Finance Solutions. For our clients, we can help them apply for home buying loans and ease their real estate investment.
We have several home-buying services in Texas that can help you acquire a property quickly without any hassle. Our staff can do market research and identify the ideal home for you. We can assess your credit score and help you locate suitable mortgage options.
Check out how you can get pre-approved for a mortgage with us. For more details, reach out to us by calling at 512 820 8146.
