Looking to buy a home? If so, it’s unlikely that you’ll be making a single cash payment. Just 16% of home buyers pay cash, and the average mortgage for a new home is over $250,000.
As these statistics show, big mortgages are an essential part of the process for most home buyers. And your credit score has a major impact on the terms you can get your mortgage for, or whether a lender will even be willing to give you a mortgage in the first place.
Below, you’ll find an explanation of the relationship between mortgages and credit scores.
Credit scores range from 300 to 850. If your score is 800 or higher, you have an exceptional score. 740-799 is considered very good, 670 to 739 is considered good, 580 to 669 is considered fair, and 300 to 579 is considered very poor.
An exceptional score is ideal, obviously, but the number you need will vary based on your situation. How expensive is the home you’re getting a mortgage for, and how much can you afford to put forward as a downpayment?
Many lenders require a credit score of 580, though your terms will be less favorable with a fair credit score than they would be with a very good or exceptional score.
You’re unlikely to qualify for a mortgage if your score is 500 or lower.
There are some situations where even a fantastic score won’t be sufficient to get you a conventional mortgage. If you need a loan larger than the limit set by The Federal Housing Finance Agency (FHFA), you’re going to need a jumbo loan.
These limits are set in place because some homes are so expensive as to be harder to sell on the market. At a certain point, these mortgages become risky for lenders even if they are able to turn a profit when the house is sold. This is because the expense of certain high-end homes means there’s less buyers available.
The current conventional limit for a conventional loan is $484,350, at which point you’ll then need to get a jumbo loan. That said, conventional loan limits vary by area, so you’ll need to research the limit in your area before determining whether you need a jumbo loan.
If you’re unable to get a loan with your current credit score — or the loans available don’t have appealing terms — you’ll need to raise your credit score.
This is complicated both because of the byzantine nature of credit reports and the long-term view these scores take of your credit history.
The first step is ensuring that your credit score is accurate. This process is known as credit repair, and it involves getting scores from the three major credit bureaus and ensuring that any accurate marks are correct and well-sourced. If they’re not, the negative mark may be removed, raising your score.
If the report is accurate, it’s recommended that you wait at least six months before applying for mortgages. This allows you time to pay off loans and begin establishing a better credit history.
A credit counselor can help guide you through this process.
If so, Ascend Credit Solutions is here to help. We’re the credit experts who are here to help ensure that your credit score doesn’t hold you back from getting the loans you need to buy a home, car, or make another significant purchase.
Whether you have a question about our services or you’re ready to get credit repair, please don’t hesitate to reach out to us.