How Your Credit Score Affects Home Loans
by Arina Smith Loans & Credit 12 March 2020
If you’re getting ready to buy a house, you’re in for an exciting adventure! But one thing you need to know before you even get started is the importance of your credit score.
Knowing how your score impacts your home loan offerings could mean the difference between getting the home of your dreams or dreaming about your home a while longer.
What is Your Credit Score?
Stated by a credit repair agency, your credit score is a number determined by the record of your past purchases, spending habits, and timeliness when paying off bills and loans. Your score is the most significant factor that loan corporations and banks look at when determining how much of a loan and interest rate to offer you.
Credit scores are broken down into five scoring ranges:
– Excellent = 800-850
– Very Good = 740-799
– Good = 670-739
– Fair = 580-669
– Poor = 300-579
The better your score, the better loans and interest rates you’ll secure from lending companies. The farther down on the scale you go, however, the less likely you become to get the loan amount or the interest rate you desire.
There are three credit reporting agencies, and each has a slightly different method of calculating your score. In general, however, your score is based on the following:
– Payment History
– Total Debt
– Credit History
– Credit Diversity
– Recent Credit
The heaviest weighted item on the list is your payment history. This is because creditors and loan agencies use your credit score to determine your likelihood of paying a loan back. Your track record of paying bills and loans on time will go a long way in helping an agency determine your reliability.
Credit Score and Home Loans
Your credit score will help a lending agency determine the following items when you apply for a home loan:
– How likely you are to pay them back.
– How large of a loan they are willing to give you.
– How good of an interest rate they will extend.
You will likely need only put the minimum down for your house and will be granted the exact loan amount you want with the best interest rate available. Offers for your score are highly competitive.
You will likely be required to put a greater deposit down on your house and receive a slightly less sizable loan. Your interest rate will still be beneficial but not as good as those with an “excellent” rating. Offers for your score are competitive.
You will need to put a minimum of 10-15% down on your house and take a smaller loan overall. Your interest rate will not be as beneficial but still better than some. Offers for your score are still competitive.
You will likely need a co-applicant to qualify for a loan that is enough to purchase a house. You’ll be required to place a significant amount down, and interest rates will not be beneficial.
You will likely not be offered a loan at this rating. You will need to spend some time to improve your score before you apply.
Better Score, Better Loan
As you see, the better your credit score, the better loan and interest rate you’ll be offered. It’s important that you pay your bills off on time to ensure a credit score that steadily improves over time.
The more work you put into improving your credit score, the better loan you’ll be offered, and with a better loan comes moving into the house of your dreams. Are you ready to apply for a home loan?