The majority of people purchasing homes must obtain some type of mortgage loan. A borrower’s credit score determines if a mortgage will be approved. This as well as the maximum amount that will be available to the borrower. That’s why it’s so important anyone contemplating buying a home look at their credit history prior to looking at that first home.
Understanding Credit Scores
A person’s credit history determines their FICO score. This is the measure lenders generally use to evaluate a borrower’s credit worthiness. However, most people don’t fully understand how that score is determined.
There are several factors used to determine credit scores. Of course, a borrower’s payment history is at the top of list. Late or missing payments, for example, will drop a credit score dramatically. The total amount owed is also considered. Lenders will pay close attention to the total debt load a borrower is carrying.
Other factors include the length of a person’s credit history. Young borrowers without much credit history frequently find obtaining a mortgage is difficult. Lenders also want to see the types of credit a borrower is using. They look at vehicle loans differently than credit card debt, but every loan is considered.
One other area that’s carefully monitored by lenders is the amount of new credit a person has. If a borrow has taken on several new credit cards, auto loans, or other forms of consumer credit in a short period of time, it will negatively impact their credit score and make it difficult to be approved for a mortgage.
Is Your Credit Score High Enough to Obtain a Mortgage?
The average credit score in the U.S. is roughly 700. However, lenders make mortgages available to borrowers with far lower scores. FHA, for example, has programs in place to help struggling would-be homeowners with scores as low as 580. However, conventional mortgages normally require a minimum credit score of 620.
Can Buyers with Low Credit Scores Take Steps to Improve Those Scores?
Since the interest rates lenders demand are affected by credit scores, it’s always a good idea to take steps to increase your credit scores before applying for a mortgage. That might mean reducing credit card debt or paying off a vehicle loan. If you’ve got questions about your credit score and how to improve it, there are numerous sites that offer advice.
Everyone’s Circumstances are Different
Since no two home buyers are exactly alike, working closely with a lender that’s aware of all the currently available mortgage options is strongly recommended. Local lenders also know about any area-specific mortgage options subsidized by local governments.
While real estate agents are not lenders and don’t have all the facts borrowers need to make decisions, they may be able to recommend area lenders that will work with borrowers to obtain the best mortgage deals available.
Now Is the Time to Get Started
If your credit score is above the minimum required for a specific type of loan, now may be time to start shopping for a mortgage. Since higher credit scores mean lower mortgage interest rates, it always pays to improve your score when possible, but even those with lower scores may be able to take advantage of a buying opportunity.
Check your credit scores today to find out if you’re likely to qualify for a specific type of mortgage and discuss your options with a lender before shopping to make sure you’re looking at the right types of homes. If you’re interested in buying a new home, the best time to start the process is now.
Since 2010, Laura Lahti has been helping the people of Southern Wisconsin find their dream home or sell their existing home. Through the years, she has build up an impressive repertoire of clients and other realtors, giving her access to the best information to suite your needs. If your looking to buy and/or sell a home, call her at 608-239-3469 or reach out online.