The Facts about Buying a Home and Your Credit Score

It’s true, your credit score plays a big role in buying a home. It’s one of the most important factors lenders will look at to determine which loan options you will qualify for and what your terms might be. BUT there is one myth about credit scores that may be holding some buyers back from applying for a mortgage for a new home:

You Need to Have Perfect Credit: MYTH

It is true that about two-thirds of homebuyers don’t know what lenders are looking for. What is the minimum credit score needed?

Perfect Credit Isn’t Necessary: REALITY

You don’t have to have perfect credit to be approved for a mortgage. There is no set cut-off score across the board. FICO says:

“While many lenders use credit scores… to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cut off score” used by all lenders. There are many additional factors that lenders may use . . .”

So, even if your credit score isn’t as high as you’d like, you may still be able to get a home loan. Just know that even though you don’t need perfect credit to purchase a home, your score can have an impact on your loan options and the terms you’ll be able to get.

You should consult a trusted lender who can help determine what terms you can qualify for.

Simple Tips to Improve Your Credit Score

If you want to open up your options a bit more after talking to your lender, here are a few tips from Experian and Freddie Mac that can help give your score a boost:

Pay Your Bills on Time

This includes everything from credit cards to utilities and other monthly payments. A track record of on-time payments shows lenders you’re responsible and reliable.

Pay Down Your Debt

Reducing your debt not only improves your debt-to-income ratio, it also improves your credit utilization ratio (how much credit you’re using compared to what your total credit limit is) It will also makes you a lower risk borrower in the eyes of lenders, making them more likely to approve a loan with better terms.

Don’t Apply for Any New Credit

While opening new credit accounts might seem like a quick way to boost your score, too many applications in a short period can have the opposite effect. Focus on improving your credit with your existing accounts.

Summary

Your credit score doesn’t have to be perfect to qualify for a home loan. The best way to know where you stand is to work with a trusted lender to explore your options. And then, when you’re ready to start looking for your new home, give us a call. Logical Choice is your trusted source for buying real estate in Southwest Florida.