If you’ve decided to buy a home this year, you may have some questions about how your credit score will impact your purchase ability. This is a common question for many potential homebuyers, so here, I will discuss some of the primary things that you’ll need to know once you start the homebuying process.
Credit scores and credit reports will affect a borrower’s ability to purchase a home in a few different ways. Credit reports are a footprint that allow banks to review a borrower’s credit history. The information found in these reports will give them the information they need to determine the level or risk they’re taking by loaning money to this person. The higher the credit rating, the lower the risk for the bank. The lower the credit score, the higher the risk for the bank. In addition, remember that your credit score will affect the interest rate of the loan you obtain.
Here are some helpful tips on how to bolster your credit score and secure a good loan on the home of your dreams.
- Make on-time payments on all borrower accounts
- Missed or late payments will negatively affect your credit score
- Satisfy unpaid collections, judgements and tax liens (even if these are medical in nature, it’s ideal to pay them off or settle prior to purchasing a home)
- Establish a credit history by opening a credit line. We are often taught that credit cards are bad. However, they’re essential for establishing a solid credit rating to borrow future funds. The key is to keep the balance below 30% of the allowed limit, always. It’s ideal to pay the balance off each month as well.
- Minimize credit iniquities. Too many inquiries can cause credit scores to drop.
- Don’t close existing revolving trade lines if they’re in good standing. When you close a credit card you lose the on-time payment history which influences your credit rating. (1)
The specific details as to what credit scores are needed to obtain a specific home loan:
– Conventional Mortgage: credit score of 620
– FHA Mortgage: credit score of 580
– Veteran Affairs (VA) Mortgage: While the VA does not have a minimum credit score requirement, Quicken Loans requires a 620 credit score on all VA loans. (2)
The bottom line: the better your credit score, the easier it will be to get a loan for your home. Contact me today for information on what it will take to embark on your journey in buying or selling a home.
- Information courtesy of: Aaron Hicks, Mortgage Consultant with Homestreet Bank
- Information courtesy of: Jevon Domench of Academy Mortgage Corporation