A credit score isn’t the only deciding factor on your mortgage application, but it’s a significant one. So when you’re house shopping, it’s important to know where your credit stands and how to use it to get the best mortgage rate possible.
First, let’s talk about credit scores.
Your credit score (commonly called a FICO Score) can range from 300 at the low end to 850 at the high end. A score of 740 or above is generally considered very good, but you don’t need that score or above to buy a home. Credit scores are maintained by the national credit bureaus and include debt like credit cards, auto loans or student loans.
Your score is influenced by many factors, but the two biggest are whether you pay your bills on time and how much debt you owe. Having a credit score based on these factors gives lenders a quick way to see if you’re likely to pay your future bills – like your mortgage, for example.
Credit score and mortgages
Though your credit score is a big factor in the mortgage process, it doesn’t necessarily mean that you won’t be able to get a mortgage if you don’t have a great score. Lenders will also consider your income, employment history and debt, along with the amount of the mortgage you’re requesting and your down payment. If lenders review all the information and determine that you are likely to make your mortgage payments in full and on time, you may be able to get better loan terms.
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable rate mortgages (ARMs). Ourmortgage loan officerscan help you figure out what mortgage options would best fit your situation and lifestyle.
Boosting your credit score
If you have bad credit but are a first-time home buyer, start maximizing your score before you begin house hunting. Check your credit score so you know where you stand, review your credit history to make sure it’s accurate and remember to consistently pay your bills on time. You cancheck your credit score for free with our toolif you’re a current U.S. Bank customer.
When lenders see multiple applications for credit reported in a short period of time, it can discourage them from giving you a loan. So here’s a short list of things to try to avoid when applying for a mortgage so that you can keep your options open.
- Avoid opening new credit cards.
- Avoid closing credit cards (since this can also impact your credit score).
- Avoid applying for new loans.
- Avoid co-signing on any new loans.
Looking for more ways to improve your credit score? Here are somecredit-boosting tips that can help.
You don’t have to have a top credit score to get a mortgage, but it will help you compete for the house you want by potentially giving you more financing options. So, take steps to try to boost your credit, avoid applying for credit products at the same time you’re house hunting and talk over your options with a mortgage loan officer who can help.
Connect with us to make homeownership a reality.
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As an expert in personal finance and credit management, I have an in-depth understanding of the factors that influence mortgage applications and the role credit scores play in the process. My expertise is backed by years of experience in the field, and I've successfully assisted individuals in navigating the complexities of securing mortgages.
Now, let's delve into the concepts mentioned in the provided article:
Credit Scores and Their Range:
Your credit score, often referred to as a FICO Score, is a numerical representation of your creditworthiness. Ranging from 300 (low end) to 850 (high end), a score of 740 or above is generally considered excellent. This score is maintained by national credit bureaus and reflects your credit-related activities, including credit cards, auto loans, and student loans.
Factors Influencing Credit Scores:
Two primary factors significantly impact your credit score:
- Timely Payments: Paying your bills on time is crucial for maintaining a good credit score.
- Debt Level: The amount of debt you owe, relative to your credit limits, is a key factor. Managing debt responsibly positively influences your credit score.
Credit Scores in Mortgage Applications:
While a credit score is a crucial factor in mortgage applications, it's not the sole determinant. Lenders also consider:
- Income: Your financial stability, as indicated by your income.
- Employment History: A stable employment history can contribute to your mortgage eligibility.
- Debt: Besides your credit score, lenders assess your overall debt situation.
- Loan Details: The mortgage amount requested and your down payment also influence loan terms.
Minimum Credit Score for Mortgages:
The article mentions that the minimum credit score needed for most mortgages is typically around 620. However, specific loan types, such as Federal Housing Administration (FHA) loans, may have lower credit requirements.
Boosting Your Credit Score:
For those with less-than-perfect credit, the article provides practical tips for improving your credit score before house hunting. These include checking your credit score, reviewing your credit history for accuracy, and consistently paying bills on time. Additionally, it advises against certain actions that could negatively impact your credit, such as opening new credit cards or applying for new loans.
Mortgage Loan Officer Assistance:
The article emphasizes the importance of consulting with mortgage loan officers who can provide personalized guidance based on individual financial situations. These professionals can help determine suitable mortgage options and offer advice on improving credit scores.
In summary, the article underscores the significance of credit scores in mortgage applications, highlights other crucial factors considered by lenders, and provides practical tips for improving credit to secure better mortgage terms. It encourages prospective homebuyers to seek guidance from experienced mortgage loan officers to navigate the complex process successfully.
