The purchase of a new home requires learning all about various aspects of homeownership (financial, legal, and practical) that can be overwhelming to a first-time homebuyer and homeowner. As part of our ongoing All About series, LGI Homes seeks to provide an easy-to-read and easy-to-understand resource that goes in-depth on a variety of subjects connected to buying a home. Today, we explore the world of credit scores and how they will play into your experience of buying and owning a home.
1. What credit score do I need to get a home loan? – Typically speaking, most lenders prefer applicants who have at least a 620 credit score. A score lower than 620 is considered sub-prime, and it will be difficult to obtain a loan. A score between 620 and 650 is considered fair credit, anything higher than 650 is considered good credit and obtaining a home loan should be relatively easy – provided you have no other warning flags in your credit report, such as bankruptcy.
2. Can my credit prevent me from getting a loan? – Essentially, yes. If you have a credit score less than 620, some lenders will deny your application outright. However, some may be more than happy to work with you. If you’re unsure about your credit score, give LGI Homes a call. We may be able to assist you in obtaining the home of your dreams.
3. Will my credit score influence my payment amount or interest rate? – It might. Your payment amount will largely depend on how much you borrow and the terms of your loan, and your interest rate will mostly be determined by current market conditions. However, most lenders have a base interest rate for average credit and a sliding scale for people with higher or lower than average credit. For example, borrowers with a 760 credit score or higher may qualify for a 3.818% interest rate, while borrowers with the bare minimum score of 620 credit might be looking at a higher rate. Your interest rate will impact how much total you have to pay on your mortgage, so the better your credit, the less you’ll have to pay in total.
4. How can I raise my score? – If buying a home is on your current priority list, it certainly won’t hurt to start trying to raise up your credit score before you go house hunting and lender shopping. The easiest way to raise your score is to make all of your payments on time and in full every month. Doing this for even just a few months will help bring up your score. Pay down any existing debts you have as much as you can.
5. How can I buy a home with bad credit? – If your credit score is bad, you may be able to obtain a home loan provided you can put down a pretty sizeable down payment. You may also be able to find a lender who specializes in lending to people with poor credit, but expect your interest rates to be higher.
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