Buying a home is a major life event and one that can bring great joy, but it can also create its share of anxiety. Preparation should begin long before the first visit to an open house. Your credit score is one of the most important things to look at before trying to buy a home. That one three-digit number will be a factor in pretty much every facet of the process. Consider the following:
- Loan qualifications—Your credit score is the first number that lenders consider when they review your loan application.
- Lenders—While you may want to borrow from the bank that you’ve had your checking account with for the last five years, not all lenders work with all borrowers. Once again, your credit score will be a determining factor in whether you’ll be able to work with a traditional bank or if you’ll have to turn to a specialty lender.
- Down payment—This is often the scariest number for home buyers because they will have to put down thousands of dollars to buy a house. Your credit score can impact the minimum down payment that lenders require. For example, Federal Housing Administration-backed loans only require a 3.5 percent down payment if your credit score is above 580. If your credit score is below this magic number, you may need to put down 10 percent or more.
- Interest rate—Lenders determine the interest rate that you’ll pay based on your credit score and other factors. A $200,000 mortgage at 5 percent will result in a payment of more than $100 a month compared to a loan at 4 percent. That equates to more than $6,000 in extra interest over the first five years of a mortgage.
Why is a credit score so important?
Lenders use your credit score as a tool to measure risk. The score is based on a number of factors, including past payment history, the outstanding amount on existing loans, and any negative marks against you. Lenders prefer high credit scores because they see the borrower as less of a default risk.
What is a good credit score for buying a home?
BankRate says that a credit score of 740 or more will help home buyers get the best interest rates. The FHA has programs that offer low down payment options for borrowers who have a score of 580 or more. The credit score range to qualify for a mortgage varies significantly, and even if you meet the minimum, it’s recommended that you have the highest credit score possible.
This could be where a credit repair service can help. Even if you have a score that might qualify you for some loans, improving your credit score will help you get better interest rates, avoid having to pay mortgage insurance, and save you money over the duration of your mortgage.
Using a credit repair service can improve your credit score in a number of ways. First, removing incorrect information can help improve a credit score. According to Ovation Credit Services, 79 percent of credit reports contain errors and 54 percent have outdated information. Ovation provides tools for customers to dispute credit report errors and help them improve their credit score.
There’s no doubt that having a healthy credit score can be important in the home buying process. The higher your credit score, the better chance you have of buying the home of your dreams with the best possible terms. You’ll also have multiple lenders that want your business instead of having to work with lenders that prey on customers who have poor credit scores.