While getting pre-approved for a home loan process to buy a home, the buyer’s credit score is one of the most important criteria that is factored into the process. Some people find themselves in despair, especially after the Great Recession, that these 3 digits can sometimes be a large deciding factor in acquiring a home loan. Seller-based financing and a few other options may not require as good of a credit score, but the conventional routes to home-ownership will. This score is not just for acquiring a mortgage, it paints an overall financial picture of you as a buyer.
The number between 300 and 850 is commonly referred to as a FICO score, that lenders use as a prime factor in deciding whether or not a customer will have the ability to pay back a loan. The higher the number, the better bet the person is “on paper”. The formula used to calculate this is a mixture of payment history, amounts owed, how long the person has had credit, and if they have recently opened any new credit accounts. Your payment history and amounts owed together make up over 60% of what is gleaned for your score. All of the information that the bureaus use to compose your credit score is found on your credit report, which reports from 3 major bureaus. Even though there are nearly always inaccuracies between the 3 reporting agencies, this is still the standard for what churns out that 3 digit number that governs quite a bit of your future in purchasing.
Generally speaking, under 660 is a credit score that will not have a lender see you as a favorable bet. When the housing meltdown occurred, this risk group was what defined the term “subprime mortgage”, and some borrowers had scores as low as 600. What is seen as a very poor credit score is between 500 and 580, and you will probably have a very hard time finding a loan at all. Between 580 and 620 is still considered poor, and if you can secure a mortgage, may be looking at an interest rate up to 3-4% higher than the normal standard. In the credit score range that is from 660-699, you are for the most part in the clear, and may have some lenders tacking on just an extra .5% to your fee.
Within the 700-760 credit score range, your score has a very minimal impact on your interest rate, and you should not have many problems. The “excellent” category of credit rating is 760-850, and this is when it can be fairly easy to secure a mortgage with among the lowest interest rates possible. The FHA loan is still one of the most common for first-time home-buyers, and the credit score is very important: With a 580 credit score or above, they buyer will generally have a down payment of around 3.5%, and if it’s lower, that amount jumps drastically to 10%.
Right here in Virginia, you can search Chesterfield Homes For Sale Here, after you get your loan squared away and are ready to look at some dynamite properties. There are also plenty of credit counselors out there who can help you with getting all of your payments down, only into one payment, and even removing some negative items from your score that have been there for awhile. Don’t despair, and realize that your dream home is literally waiting right around the corner if you are beginning to repair that all-controlling 3 digit number!