Credit score matters a lot, especially when you are purchasing your house. Lenders consider it as one of the biggest criteria in the home application procedure. The three tiny digits of your credit score determine the future of your house, whether you will be able to purchase your dream house or not or whether you will have to find an overpriced rental apartment.
Your credit score determines whether you are eligible for a mortgage loan or not. What should be your credit score to purchase a house? What is the minimum credit score requirement for the purchase of a house? Is there any direct relationship between credit score and interest rate? These are some questions whose answers depend on credit scores. In short, your credit score is the future of your dream home.
In this article, you will know how your credit score will determine the house you should buy.
First thing first, what is a credit score?
Your credit score is the 3-digit number which covers all your financial aspects. It’s is not just for getting a house; it matters for all the important financial transactions. The term credit score, also referred to as FICO score, is a 3 digit number lying between 300 and 850 that represents a person’s financial status. It shows whether a person who applies for a loan will be able to repay it or not. You may also look for refinancing private student loans in some cases to ease the financial burden.
A person with a credit score of 850 or near it, is considered as a guaranteed payer, whereas a person with a score of 300 is considered that he will likely miss his payment of loan amount.
Credit score calculation formula was developed by Fair, Isaac and Company (FICO). A credit report is issued by the credit bureaus to provide all the information related to credit score calculation. Before applying for any loan, you should get the copy of your credit report to learn your credit score. Especially when you are applying for a mortgage loan, it is good to check your credit score to avoid any further credit score related issues and difficulties.
Factors affecting credit score
- History of payments
- Running Loans
- Credit Limit Utilization
- Unsecured Loans
Credit scores and loan size
The size of your loan amount depends on your credit score. For example, if you have a credit score of 630 then it will be challenging for you to apply for a bigger loan size. A lender will always check your credit score before passing any loan, so if your dream house cost is big and you want a big loan amount, then the best way is to maximize your FICO score before applying for a mortgage loan. You can seek help from credit professionals who will guide you in this process and will suggest tips to improve your credit score.
Is your credit score good enough to buy a house?
Credit score ranges from exceptional to poor. Review the credit score scale to get clearer ideas about the FICO score:
|Credit Rating||FICO Score Ranges|
|Exceptional||800 and above|
|Poor||579 and below|
This FICO score model is widely used by many lenders to decide whether to grant mortgage loans to homebuyers or not. Your home cost will be higher if you have a low credit score. If you have a credit score less than 580, you can qualify for an FHA loan, but you will have to pay the loan amount with a high rate of interest.
Apart from that FICO score, lenders will consider others factor too when expecting to have an approved mortgage loan. The factors will include your income, debt-to-income ratio, and debt-to-loan ratio in order to have your mortgage loan approved.
Why does a credit score is so much important?
To get a home loan, you will be required good or high credit score along with a solid financial history. Why?
Imagine yourself as a lender who gives money as a loan to his friend, and now, there are two possibilities, one is that he will pay you back, and the other one is he will not pay you because of many reasons. Similarly, banks also feel when they approve a home loan. They have to check the individual’s credit score to be sure that he/she will be able to repay the loan amount or not. If the individual has maintained a good credit score, then he is eligible for a mortgage loan.
Can you buy a house with poor credit?
A good or excellent credit score is required to buy a house, but if your credit score is low and you want to buy your house, then yes, you can buy a house. It will impact on your interest rate you will pay for your house, but yes, by putting a little extra effort and money, you can manage to buy your dream house even with a low credit.
Credit score means a lot when you are purchasing a house. It not only determines whether you will be able to buy a house or not but also determines the type of house you should buy. If your credit score is excellent, then you will get a big size loan for your home and end up in buying a big house similarly, and if you have an average credit score then the amount of loan will be less and you will not be able to purchase a not so big house.
Wrapping up this article, check your financial situations and figure out what you need and make plans as per the needs and activities, and try to maintain a good credit score. It will help you in many situations. You will be able to get any types of loan if you have a good credit score. Now, you know how important credit score is and how it determines the house you should buy. Start working on your home loan process. Good luck!