Homebuyer Tips

How Your Credit Score Impacts Getting a Mortgage

Many things factor into your ability to qualify for a mortgage. Your credit score is at the top of the list. Lenders use your credit score and credit history to determine the likelihood of you paying that money back. You can imagine how much more critical that becomes when you are borrowing hundreds of thousands of dollars to buy a house.

Some of the criteria used in determining your credit score includes:

  • Credit history (how you have used your credit)
  • Length of credit history
  • Mix of credit
  • Debt to income ratio (how much debt you have compared to your income)
  • Bill payment history

Obviously, the higher your credit score, the better your chances of securing a mortgage within your affordable income level. A high credit score also opens you up to more loan options and better interest rates. It may also determine how much of a down payment is required for the loan you choose.

Lower credit scores don’t automatically disqualify you for a mortgage. Most lenders require a minimum credit score somewhere in the 500s. The government requires a minimum credit score of 580 to qualify for an FHA loan, but that may require a higher down payment and may also require you to fix any liens or judgements you might have against you. A typical FHA loan down payment for consumers with credit in the 600s or higher is relatively low.

Lower credit scores may also qualify for First Bank’s Portfolio Loan. These loans are for borrowers who are not eligible for a typical loan such as a conventional or FHA loan due to past credit issues, but are in a good financial position to purchase a home.

VA loans could be another option for buyers with lower credit scores, however, VA loans are specific to active duty military and veterans, so you must meet other criteria, as well, to qualify for those loans.

Credit Scores Also Impact Mortgage Rates

Credit scores don’t just impact your ability to qualify for a mortgage or your required down payment. They also impact your interest rates. Those with better credit typically get rewarded with lower rates than those with lower credit scores. While this may not sound like a big deal, the difference of a half percentage point can amount to thousands over the life of your loan, depending on how much you borrow.

Help with Credit

If your credit score is keeping you from buying a home, we recommend calling the FHA for assistance at 1-800-CALL-FHA. Ask for a referral to an FHA-approved housing counselor who can help you learn how to raise your credit score. A good credit counselor will examine your credit history and suggest actions you should take to improve your credit and take the right steps to becoming a home owner.

Just remember, raising your credit score takes time. Lenders look for a record of at least one year of reliable payment history. Hopefully during that year, a credit counselor will help you take other actions that will also help raise your credit score.

To learn more about your credit score and mortgage options, speak to one of our Home Loan experts.

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