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06/19/2019 by HOM

What Roles Does Your Credit Score Play

Many factors come into play in the process of buying a home.  One of the key factors is your credit. Your credit score is one of the major components that lenders look at when evaluating your mortgage application. Having a low credit score will not completely ruin your chances at buying a home, but it will affect the interest rate of your mortgage. Before starting your search, we recommend that you check your credit score. Pull all three reports (Experian, Transunion & Equifax) to make sure that they are aligned. If you have lower credit, tackling some issues beforehand could help to raise your score and ultimately lower the interest rate.  Aside from a higher interest rate, a lower credit score will also show a risk to lenders causing them to be more stringent on other areas of your finances.

Talk to your Realtor to learn about the various types of loans. For example, a conventional loan (the most popular) will work for applicants with a credit score as low as 620, but may have additional requirements such as a lower debt to income ratio. Another option is an FHA loan which is government-insured to help assist first time home buyers. With FHA, borrowers need a minimum FICO score of 580 to get FHA’s maximum 3.5 percent financing. However, a credit score of 500 is accepted with at least 10 percent down.

It is important to do your own due diligence before initiating the search for buying a home. Pull your credit report and check for any errors that may have occurred. Some other tips include not closing credit lines once paid off; avoid opening any new credit lines during the home buying process and when your credit has improved, rate-shop within a 30-day window. Spreading out all the inquiries can hurt your score.  Managing you credit (score) takes time and effort, but it is well worth it, especially if your planning on buying a house.

Contact Houlihan O’Malley today and let one of our trusted agents assist you in purchasing your new home.  We can even refer you to some excellent mortgage professionals.

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