What To Know About Your Credit Scores Before Buying a Home
Are you on the hunt for a new home in Portsmouth, NH, or along the beautiful New Hampshire Seacoast? Your credit score is crucial for making your homebuying dreams a reality. It provides lenders with insights into your payment history and can impact the interest rate you receive on your mortgage. Lenders analyze your credit score to gauge your track record with payments, debt repayment, and other financial behaviors, all of which influence your mortgage rate. An article from US Bank explains:
“A credit score isn’t the only deciding factor on your mortgage application, but it’s a significant one. So, when you’re house shopping, it’s important to know where your credit stands and how to use it to get the best mortgage rate possible.”
That means your credit score may feel even more important to your homebuying plans now since mortgage rates are a key factor in affordability. According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is 770. But that doesn’t mean your credit score has to be perfect. The same article from US Bank explains:
“Your credit score (commonly called a FICO Score) can range from 300 at the low end to 850 at the high end. A score of 740 or above is generally considered very good, but you don’t need that score or above to buy a home.”
While the median credit score for U.S. mortgage borrowers is 770, you don’t need a perfect score to buy a home. A score of 740 or higher is generally considered very good. But keep in mind, that each lender has its own criteria, so it’s best to consult with a trusted Realtor or lender to understand how your credit score may affect your home loan. You’ll typically need a credit score of 620 or higher to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with scores as low as 500. Whether you qualify for a specific loan type also depends on personal factors like your debt-to-income ratio (DTI), loan-to-value ratio (LTV), and income. As FICO says:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.”
If you’re looking for ways to improve your score, Experian highlights some things you may want to focus on:
- Your Payment History: Late payments can have a negative impact by dropping your score. Focus on making payments on time and paying any existing late charges quickly.
- Your Debt Amount (relative to your credit limits): When it comes to your available credit amount, the less you’re using, the better. Focus on keeping this number as low as possible.
- Credit Applications: If you’re looking to buy something, don’t apply for additional credit. When you apply for new credit, it could result in a hard inquiry on your credit that drops your score.
Bottom Line
Improving your credit score could help you secure a lower mortgage rate, making homeownership more affordable. As experienced local Realtors in Portsmouth, NH, Ann Cummings, and Jim Lee can provide you with personalized advice on how to improve your credit score and secure the best loan terms. Contact us today to learn more about how we can help you achieve your dream of owning a home in the New Hampshire Seacoast.
