Having a good credit score can make buying a house much easier. The higher the score, the better the chance you’ll have of securing a mortgage. Not only that but a better number can also lower your interest rate, leading to less money spent over the duration of your mortgage. Knowing your score can also speed up the pre-approval process. In today’s blog, Family Home Loan Texas discusses everything you need to know about credit scores and how they affect the home buying process.
What Is A Credit Score And What Goes Into It
It is essentially a number that determines the likelihood of you paying back a loan on time. The higher the number, the better the chance — in the eyes of a lender. The most common score, and the number you probably come across the most, is from FICO. The score provided by FICO is one of the primary tools that lenders look at when determining your interest rate for a mortgage. Several factors contribute to the score: payment history, the amount owed, length of credit history, types of credit, and new credit.
What Score You Need To Buy A House
Typically, potential buyers should have a score of 620 or higher to secure a home-buying loan. Generally speaking, a score from 800-850 is considered exceptional; 740-749 is very good; 670-739 is good; 580-669 is fair; 300-579 is poor. As noted, the higher your score, the better the chance of having a lower interest rate. At 620, you will likely qualify for a traditional loan. Between 500 and 580 you can still qualify for other types of loans, typically an FHA loan. When you know your score, you’ll have a better sense of what you will be able to afford.
Types Of Mortgage Loans
Conventional loans are for those with good to excellent scores. They follow the guidelines set by Fannie Mae and Freddie Mac. These loans have the most competitive interest rate and offer flexible repayment periods ranging from 8 to 30 years. They are uninsured by the government.
FHA loans are another type and they are easier to qualify for. These are insured by the government, which makes them less risky for lenders. This is precisely why they require a lower credit score (and also charge more interest). You can secure one of these loans starting at a 3.5% down payment. That said, if your credit score is at 500 — and the lender does decide to provide you a mortgage loan — you might need to put 10% down.
VA loans are available for eligible members or veterans of the U.S. Military or a member or veteran of the U.S. Military Reserves or National Guard. Spouses of military members who died while on active duty or because of a service-related disability can also apply for one of these. This is an advantageous option for those who qualify because they do not require a down payment and are available to individuals with lower credit scores.
Contact Us If You Want To Know More About Credit Scores
We are proud to work with Texans with all types of credit. We want to help you find the home of your dreams. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about your home loan needs, including refinancing and reverse mortgage loans.