If you are considering stepping into the housing market to purchase a home, chances are, you are doing some research on mortgage rates and what it takes to obtain a home loan. Figuring out what the mortgage rates are right now and figuring out how you can get the lowest rate possible is an important part of the home purchasing process. There are several things that determine what your mortgage rate is and your credit score is one of the primary things that lenders will look for before they loan you money.
What is a FICO credit score?
This is a credit score that is determined by FICO, a company specializing in predictive analytics, which is used to analyze and predict future happenings. For credit scores, the company uses a variety of credit information to develop scores that will help lenders predict consumer behavior, including how likely it is for the person to pay bills on time and if they are able to handle a large mortgage or credit line. Your credit score is based on several factors including your payment history for all accounts, the amount of debt you currently have, how long you’ve been using credit, and what types of credit you use.
There are several minimum requirements to receive a credit score, including at least one credit account opened for at least six months. If you have a poor credit score, there are several things you can do to help improve it. First, bring active past due accounts current and keep on top of paying things on time. Keep credit card balances as low as possible and limit your applications for new revolving debt such as credit cards. (1)
Can you get a mortgage with a low credit score?
You can generally obtain a mortgage if your credit score is poor, but keep in mind that you may not get the lowest rate available. However, if your score is below 580, it may be difficult to get a loan approved. The higher credit score you have, the more likely you are to get a lower mortgage rate. Raising your credit score even by 20 points or so can really help in getting a better rate. For some people it’s best to wait to buy a home and improve your score and work on financial planning before you apply for a home loan.
A home purchase is one of the biggest investments you’ll ever make in your lifetime. Maintaining good credit, paying your bills on time and managing your overall finances with responsibility are all important things to have figured out before you take on a large home loan.
When you’re ready to take the leap to home ownership, I have more than two decades of experience as a Realtor® and can help you start the process of looking for a new home and can provide tips on the whole process. I love working with people around Clark County and am glad to help you with the information you need to start your adventure.
- American Reporting Company. FICO Source Overview. Accessed via Lynn Posselt, Penrith Home Loans, NMLS#41393.