In your ability to get a mortgage, your credit score and credit history play a significant role. As a borrower, mortgage lenders use your credit report to calculate your risk, and the lower your score and the more spotty your background, the riskier you are to most lenders.
The lower your ratings, all other things being equal, lenders charge a higher interest rate to protect against this risk. In fact, with a credit score of 699, you will pay almost 0.4 percent more for your mortgage rates and over $15,000 more interest on a $200,000 mortgage over your loan period than someone with a 760 score.
Why does your credit score affect your mortgage rates?
Your credit score reflects your prior use of credit, which is used by lenders to determine how responsible you are for credit. This applies to the prior payment and debt management activities, and it gives lenders an overview of what they should expect if they lend you cash to buy a home.
As such, credit ratings directly impact what mortgage rates you are given by a lender. A lower interest rate and a lower monthly payment would typically mean higher credit scores, whereas lower scores will generally earn higher rates.
How to get a mortgage with a low credit score
Your best bet is to raise your score before applying for a home loan if you have a poor credit score and are looking to buy a home. Also you can talk about your situation with a housing counselor. As well as any down payment or closing cost assistance services you may be eligible for, they will be able to direct you through your options.
An FHA loan, which provides less stringent credit conditions than other loans, may also be considered. Borrowers with credit scores as low as 500 might be able to apply for an FHA loan in certain situations as long as you have at least a down payment of 10 percent.
What is a good credit score for buying a house?
It’s not just your interest rate that influences your credit score, but your loan’s long-term costs, too. Let’s take an example at a glance. This is based on a 30-year loan of $200,000 and interest rates as of August 2020.
|Credit Score||Interest Rate||Monthly Payment||Total Interest Paid|
Also Read : How Your Loans Affecting Your Taxes
How to make your credit score higher before you purchase a house
The easiest way to raise your chances of qualifying for a mortgage loan, as well as having a lower interest rate, is to boost your credit score.
In order to do this:
- Check your credit report for mistakes
- Pay down your balances
- Keep your accounts open
- Pay your bills on time
- Settle any late bills or collection accounts
You should also take action to secure your credit while you’re getting ready to buy a home. Do not apply for new credit cards or loans, stop major transactions, and make sure to shop around for your loan within the same short period of time. This will prevent those credit inquiries and your chances of getting a loan from damaging your score.
It is important to search around for your mortgage, no matter what your credit score is. Interest rates, loan products, conditions, and more all vary by lender, and you’ll need to consider at least a couple of different lenders in your quest if you want the best offer on your loan.