The requirement for switching from renting to owning a home involves proper planning and credit history.
An individual who is considering applying for a mortgage loan should first and foremost check his or her credit score. Your ability to obtain a mortgage and a good interest rate is determined by your credit score. Although, one may get a mortgage with a bad credit score, lenders often consider a good score of 670 or higher. The most attractive scores to lenders are the exceptional credit scores above 800.
Several factors determine who mortgage lenders give loans to, among which the credit score is a primary consideration. You need to know what you could qualify for prior to applying for a mortgage loan. In a nutshell, you are advised to improve your credit score to enable you get the best interest rate on a house loan.
🏬Why mortgage lenders consider credit scores
A lender’s ability to pay off his or her debt is determined by credit scores. A high credit score is an indication that the prospective buyer is financially disciplined and reliable. It also indicates that such a person is capable of paying back the loan.
Every mortgage lender will not only want to make money, but also minimize losses. A low credit score is an indication that you are a risky borrower; hence, you might not be approved for a loan. If you eventually scale through, you will pay a higher interest.
🏦Can you buy a house with good credit?
Of course, you can purchase a home with a good credit.
You need to review the FICO credit score scale to enable you gauge where you stand. This credit score scale ranges from exceptional to poor. As earlier mentioned, endeavor to improve your credit before starting the home buying process.
Credit Rating FICO Score Ranges
Exceptional 800 and above
Very good 740-749
Poor 579 and below
Several mortgage lenders use the FICO score model as a determinant for granting mortgages to homebuyers. Actually, you will incur a higher mortgage cost if you have a lower credit score. To qualify for an FHA loan with a credit score as low as 580, you will pay a higher interest than a borrower who has no less than 700 credit score.
Various criteria are being used for each lender for mortgage loan approval. Besides credit score, other factors being considered by lenders prior to mortgage loan approval are your income, debt-to-loan ratio and debt-to-income ratio.
The credit scores needed to buy a house are enumerated below. You should strive to get the best mortgage rates for your credit score.
This is a credit score of 800 and above. With this score, you can easily get approved for a mortgage loan, although, approval is not guaranteed. Lenders appreciate an exceptional credit score; however, there is no guarantee of getting the best interest rate on the loan due to other factors like high-debt –to –income ratio. In several cases, 43% debt to income ratio is the maximum requirement to get qualified for a mortgage. If you desire getting a mortgage with a lower interest rate, ensure that you have an exceptional credit score and a low-debt-to-income ratio. Besides, shop around for the best mortgage lender. You will be more attractive to lenders and be opportune to select your choice, if you have an exceptional credit score.
🏥Very good credit
This is a credit score ranging between 740 and 749. With this, you have better chances of qualifying for a mortgage loan with a fair interest rate. You require more than a very good credit score for the best deal mortgage fees, interest rate and several other considerations.
A good credit is in the range of 670 and 739. With this, you can qualify for a mortgage loan but may probably not be considered for a mortgage with excellent interest rate. If you have a low debt- to- income ratio, a larger down payment will boost your chance of getting a loan approval with a good interest rate.
🏘What is the Value of my Home?
A fair credit score ranges between 580 and 669.
With this, you could find it difficult to get a loan approval with lower interest rates. In this instance, you can look forward to FHA loans which are available to people within this score range. With FHA loans, 3% down payment is required. However, a person whose score goes below 580 may be required to deposit a 10% down payment.
With the help of FHA loans and subprime mortgage, you can still purchase a house with bad credit. People who are not qualified for a conventional mortgage as a result of poor credit history can obtain a subprime mortgage.
Subprime lenders usually charge interest rate which is above the prime lending rate because they believe that subprime borrowers present a higher risk to them.
Having considered the various credits required to buy a home, below are tips for increasing your credit score when planning a home purchase.
i. Prompt payment of your bills
To improve your stand with the three big credit bureaus, it is essential you pay your bills promptly.
Your debt- to- income ratio will be reduced if you reduce your overall credit obligations. This will enable you to meet certain conditions established by mortgage lenders. To achieve this, make a down payment of your existing credit cards and outstanding loans.
ii.Regular review of your credit report
When you discover any erroneous information on your credit report, promptly contact the credit bureaus for correction.
Remember that non-corrected mistakes can mar your scores and hinder you from obtaining a mortgage in a lending marketplace.
iii. Avoid debts
Never incur additional debt nor apply for a new credit card during the period you are applying for a mortgage. With this, you will maintain a good credit rating.
How you can purchase a home with a good credit score has been duly explained in this write up. In case you lack good credit, you can make a concerted effort to improve your credit rating.
A good credit score will have a long term positive impact on your finance and also ensure that you enjoy the benefits associated with homeownership in years to come.
For more information on how to buy a house with good credit or to learn more about how RL Real Estate Group can help you, please contact Regan Laughlin and her team to guide you through the process of buying a house, and even do all the searching and paperwork, so all you really need to do is sign on the dotted line. Contact them now at 605-212-8431 or email@example.com. You can also visit the website at RLRealEstateGroup.com . They are here to help you with all of your real estate needs.