What It Takes to Secure the Best Mortgage
Unless you are one of those people who may be fortunate enough to be able to buy a home in cash, you’re going to need a mortgage loan. And in order to get a mortgage loan, you need credit. But not just any credit – you need good credit.
So just how good does one’s credit rating have to be in order to secure a mortgage that won’t lead to problems down the road? Before you go out seeking mortgage lenders, you should know just how good your credit is going to need to be before you can get a mortgage loan to buy a house. Read on for details!
About FICO Scores
Traditionally, lenders look at your FICO score as the main criterion for whether or not to extend you a mortgage loan. These scores range from 300 to 850. If your score is 800, you are pretty much guaranteed to get a loan at a preferred rate unless there is something else in your history with a major negative impact.
If your score is below 550, you can pretty much forget about it, especially post-2008 Mortgage Crisis. It’s not impossible for you to get a mortgage, but you will probably have to pay Private Mortgage Insurance, put a good amount of money down for the down payment, and be able to provide a detailed and verifiable repayment plan.
Is My Credit Score Good Enough?
However, there is a lot of space between 550 to 800; this is typically where most of the people who are seeking a mortgage tend to fall. So, is your credit good enough? In general, the minimum credit score you will need to get a home loan is 620. If you are applying for an FHA (Federal Housing Administration) Loan, you can get a loan for only 3.5 percent down with a credit score of 580 or better, and for only 10 percent down with a credit score anywhere over 500.
In these instances, you will have to pay mortgage insurance, and you won’t be able to buy that expensive of a house since these are loans for low to moderate income borrowers. For standard loans, however, you are usually looking at a minimum credit score of 620 or greater.
What Does “Minimum Credit Score” Really Mean?
Minimum credit score refers to what the lowest possible score is where you can be offered a mortgage, but the mortgage is by no means guaranteed. Lenders look at a variety of factors when deciding whether or not to offer you a loan, and your credit score is just one of them.
Statistics dictate that as much as twenty-five percent of people with a credit rating between 750 and 800 are denied a mortgage. The rejection rates are about the same for those between 700 and 750, but after that, your odds drop precipitously. Only 38 percent of those applying for a $150,000 loan get it if their credit score is between 650 and 700, and if your score is below 650, your odds are less than 15 percent.
On top of this, even if you get the loan, there is the matter of the interest rate to think of. You can be sure that if you beat the odds and get a mortgage with a low credit score, the interest rates will be much higher than if you walked into the lender’s office with a credit score of 800.
So What Can I Do About My Credit Score?
For the reasons above, you will want to get your credit score as high as possible before considering buying a home. You can start to do this by making regular payments on your monthly bills and paying down any credit cards, so you have a large amount of available credit relative to your income. You can also help yourself by finding the right lender. When you’re ready to start your search, visit OnlineLenderSearch.com.
