Your credit score will come into play in a huge way when you decide to buy a home. However, many potential homebuyers really don’t understand the true impact it can have on the process. Let’s take a look at how your credit score will impact your home buying experience.
Getting Pre-Approved for Your Mortgage
A pre-approval is nearly requires with the real estate market favoring the seller today. When you contact a lender to get your pre-approval, they will consider your income, employment history and credit score. If you don’t have a high credit score, you may not get pre-approved for as large of a loan or for a low interest rate.
Impact on the Down Payment
A higher credit score will help you gain access to programs with lower down payment requirements. Many loan programs have a minimum credit score requirement. If you don’t meet the minimum, you may be stuck with a loan program requiring a larger down payment.
Lower Credit May Lead to Non-Conventional Lenders
Typically, you need at least a 660 credit score to qualify for any conventional home loan. While you can still buy a home with a lower credit score, you’ll be working with a non-conventional lender. This means higher rates, higher down payments and it may be very difficult to meet the requirements necessary to buy the home you really want.
Impact on Interest Rate
Your overall mortgage payment will be controlled by three factors: length of the loan, size of the loan and the interest rate. Your credit score has the most impact on the interest rate and you can expect to pay more, if you have a lower credit score. Typically, a credit score of 700 or above will allow you access to the lowest rates, while a score under 660 may increase your rate from 1.5% to 4%. If your credit score is under 580, you’ll struggle to get approved for a mortgage without paying an incredibly high interest rate.
When it comes to buying a home, it’s best to clean up your credit first. If your credit score is lower than 680, you may want to spend some time paying off a few debts or doing other things to increase your credit score. With a higher credit score you’ll have a better chance to compete in a seller’s market and you’ll likely find it much easier to get pre-approved for a mortgage.
If you ever have a real estate question or need, or know someone who does, trust that you can turn to me. 704-650-5707 | AnnaGrangerHomes@gmail.com