Your credit score is among the more important factors a lender considers before deciding whether to approve you for a mortgage. They also consider your debt-to-income ratio, down payment amount, and your savings—or reserve cash.
If you’re just setting out on your home buying journey, you’ve probably heard how much your credit score can influence your ability to get a mortgage. It’s true that you do need a good credit score for the best interest rates. But less-than-perfect credit won’t keep you from your dream of homeownership. By knowing the ins and outs of how your score can affect your mortgage rate, you can work improve your credit and know what to expect before purchasing your new home.
Credit scores generally range from 300 to 850. Higher scores support lower credit risk, and lower scores demonstrate higher credit risk. Applicants with credit scores above 720 typically begin qualifying for prime rates. What’s considered a “good” credit score varies by lender, and by the programs they can offer.
For example, applicants interested in applying for an FHA loan, with a down payment of 3.5% require a minimum credit score of 580. If your credit score is below 580, however, you aren’t necessarily excluded from FHA loan eligibility. Applicants with lower credit scores may be required to put down a larger down payment in order to qualify for a loan, in addition to meeting the other program requirements.
Mortgage lenders typically look at the credit scores issued by all three credit bureaus. They select the middle score as the one they’ll base their loan decision on. So, if your scores are 650, 637, and 698, the lender will use 650 as your score.
Learn the factors that affect your credit score.
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