When was the last time you checked your credit score? It’s probably been a while, especially if you haven’t applied for loans lately.
If you’re thinking about applying for a mortgage, you might be wondering what your score is. After all, a bad credit score can mean your loan application gets rejected.
If you’re thinking about buying a home, here is everything you need to know about your credit score and mortgages.
It’s hard to say exactly what is the exact minimum for a credit score to receive a mortgage. It can vary depending on what type of loan you’re going to get. FHA loans, for example, only require a score of 580, and buyers only need 3.8 percent of the price for a down payment. Veterans Affairs loans, however, usually require a score of 620 to 640.
Overall, the average credit score for mortgages is about 620. People with a score of 660 or better usually get even better rates. If you’re turned down, however, that doesn’t mean you can never own a home.
A score of 700 is usually the cut-off point between excellent and fair. Being in that 700 mark can take your interest rate from 0.25 percent to 0.0357 percent – quite the difference.
Mortgage interest rates are only half of the equation when it comes to credit scores. If you pay less than 20 percent on a down payment, regardless of your score, you’ll still need to pay premium mortgage insurance. This covers you in the event you default on your loan.
So in reality, you can get a mortgage with a 600 or less score. What differs is that you’ll pay more in interest and in insurance.
You should not think that you are unable fix up your credit score. If you’re planning on buying a home, hold off for a bit and improve your score before applying. You’ll save yourself money in the long run.
First off, start spending only 30 percent of the total credit allotted to you each month on your credit card. This shows your lender that you can manage your money and not go off on a spending spree. The part of your score is responsible for 30 percent of your score so it’s important.
You also need to make your payments on time. While you should pay off all credit cards at the end of the month, you should also pay all of your bills on time. Being late deducts points from your credit score. Paying on time shows reliability.
Check your score again in another six months. You should see some improvement. If you don’t have that long to wait, you can also ask your lender to do a rapid score. You will need documentation that you’ve changed, but it can help you get pre-approved for a loan.
Your credit score means a lot when you’re trying to buy a home. Make sure you’re keeping an eye on that score if you want to apply for a mortgage in the near future. Speak with your lender if you need help bringing up your score.