How your credit score affects your mortgage rate

How your credit score affects your mortgage rate

Your credit score is among the more important factors a lender considers before deciding whether to approve you for a mortgage. But they also consider your debt-to-income ratio, your savings and how much money you have available to put toward a down payment.

Beyond helping to determine whether you can even get a mortgage, your score also plays a large role in the interest rate and payment terms you’re ultimately approved for. If your credit score is below average — which experts say is anywhere from 650 to 699 — lenders may factor in risk-based pricing when quoting your mortgage details.

To offset the perceived risk of taking on a borrower with a low credit score, a lender may increase the interest rate on a mortgage. It means that a credit score of 650 might get a higher interest rate than a credit score of 720, which could cost you tens of thousands more over the life of your mortgage.

What’s the lowest score I can have without affecting my eligibility for a mortgage?

What’s the lowest score I can have without affecting my eligibility for a mortgage?

Unless you’re a veteran who qualifies for a home loan from Veterans Affairs, you’ll need credit score of at least 500. You’ll need to meet that same minimum to qualify for a 10% down payment for a loan through the Federal Housing Administration.

If you don’t meet those requirements, getting a parent, spouse or someone else with better credit to cosign for your loan could improve your chances of approval for a traditional mortgage. Otherwise, you may need to work on improving your credit before applying for a mortgage.

What credit score do mortgage lenders look at?

About 90% of lenders use your FICO Score, the most widely used among other credit scores. But different versions of FICO Score are used for different types of loans.

When applying for a mortgage loan, your lender will likely pull these three scores:

• FICO Score 5 based on Equifax data
• FICO Score 2 based on Experian data
• FICO Score 4 based on TransUnion data

What credit score do mortgage lenders use and other than that what is needed to buy a house?

What credit score do mortgage lenders use and other than that what is needed to buy a house?

The minimum credit score you’ll need to buy a home also depends on which credit score mortgage lenders are looking at. The FICO score, developed by Fair Isaac, is the most popular scoring model in the industry. Approximately 90% of mortgage lenders use this to determine your credit score and decide whether or not to approve you for a loan.

The VantageScore is an alternative to FICO scores that’s rapidly gaining in popularity. The VantageScore system was developed by Experian, Equifax and TransUnion and it considers things like your payment history, the amount you owe and the age of your accounts.

Both VantageScores and FICO scores range from 300 to 850 but because the two models use different algorithms, it’s possible for your scores to vary widely.

Apart from your credit score, lenders will look at your employment and yearly income to make sure that you will be able to make payments on time each month. They are looking to see if you have a steady source of income.

Lenders will also look at the area you are looking to purchase a home in because there are outside factors that might make increase the risk thereby increasing the credit score needed to secure a mortgage loan. As you can tell, there are many different requirements to buy a house so do not take the decision to become a homeowner lightly.

What credit score do I need to buy a house?

What credit score do I need to buy a house?

There’s no concrete answer, but experts say that with a score of 660 can help you qualify for a home loan. Scores of 660 or lower might mean ending up with a high interest rate and poor loan terms.

To qualify for an FHA loan, which often requires only 3.5% of your purchase amount as a down payment, you’ll need a minimum credit score of 580. However, because many lenders use underwriters that assume the financial risk, you may be able to get around the minimum if the underwriter agrees to an exception if you carry minimal debt or can prove substantial savings.

Right now, the average American’s credit score is 695, which is relatively high. For top-notch rates, aim to improve your credit score to around 740 before applying for a mortgage.

• Most conventional mortgages require a credit score of 620 or higher.
• Loans backed by the Federal Housing Administration require a minimum score of 500 to qualify for a 10% down payment and a minimum 580 for 3.5% down payment.

• USDA loans require a credit score of 640 or higher
• Veteran Affairs loans require no minimum credit score.