How Much Do Credit Scores Matter When Applying For a Mortgage Loan?
When it comes to practicing good financial hygiene, credit scores often come up in conversation. If you're considering purchasing a home, you likely have one or more credit cards that you've been using for a while. But did you know that the better your credit score, the greater the impact it can have on your mortgage loan? In this article, we break down everything you need to know about credit scores and how this can influence your home buying journey.
What exactly do lenders analyze when looking at your credit score? Lenders use credit scores to assess the risk of allowing an individual to borrow money. A higher credit score increases your chances of approval because it demonstrates that you are a reliable borrower who pays dues on time and in full. Essentially, the lender will think, “I trust this person to pay me back!” - and this trust goes a long way.
On the other hand, if your score is on the lower side, this may hinder your ability to get approved or close doors completely if you have a lot of debt.
Interest rates are another hot topic for those applying for a mortgage loan. The goal is to secure the lowest rate possible. Generally, those with credit scores above 740 are more likely to qualify for lower interest rates, which can save thousands over the life of a loan! Even a small 1% cut can make a big difference over a longer period of time. If you have a lower credit score, this is less likely to be the case.
If your credit score is on the lower side, you may need to pay more cash upfront for your down payment. This is because lenders view you as a higher-risk borrower, aka you have a lot of money to pay back. You may also be required to pay for private mortgage insurance, until your credit shows signs of improvement.
With a higher credit score, you'll be able to put down a smaller amount and take advantage of government-backed loans with more favorable terms.
Your credit score also influences the type of loan you qualify for and the flexibility of your lender. Mortgage program requirements vary, so your score will determine which options are available to you. Better loans are typically government-run, and the better your credit score, the more likely you will be to score a great loan for your mortgage. But remember, it’s not just about approval, it’s about having the choice that is the best for your individual situation.
Your credit score holds power. The better your credit score, the more negotiating power you’ll have when it comes to your mortgage costs. If you're planning to buy a home now or in the future, here are a few focal points to hone in on:
Avoiding purchases you can't afford on credit cards (put the designer items back!)
Paying at least your minimum balance on time each month
Paying off balances in full whenever possible
Credit can be a confusing part of the mortgage process, but it does not have to stump you! Start focusing on making your score the best it can be, to reap better benefits down the line. To work with an expert who can simplify and streamline the process so you get the best deal, contact one of our agents at VSells & Associates today!
Whether you are buying or selling, we at VSells & Associates make it our mission to guide our clients through the whole process. We make moving simple, straightforward, and as stress-free as possible.