Credit is an important factor when buying a home, whether it is your first home or your fifth. Here’s how credit can affect your getting the home of your dreams.
- Credit scores affect interest rates. Your credit score will determine the interest rate you receive. The lower your score, the higher your rates will be. High credit scores make lenders see you as a lower risk than someone with a lower score. With the lower risk factor, you’re likely to get a lower interest rate. Even a 1% difference in the interest rate can make a difference in your monthly payments.
- Interest rates affect what you can afford. Talk with your lender to see what you’ll spend per month, and see how that will work out for you. It’s dependent on your income, your credit, the price of the home, etc.
- Know what credit factors a lender will review. Lenders consider a lot of information when determining your creditworthiness. They like to see borrowers with low balances, a low debt to income ratio, a mix of credit utilization, and a long history of on-time payments. When shopping for pre-approval, ask the lenders you talk to what factors are most important to them.
- Most lenders won’t lend at all to those with a credit score of 620 or lower. A score of 740 will qualify you for some of the best rates available. Try your best to pay off any outstanding credit card dues before you apply for a loan.
For tips on how to improve your credit score, see my November 2014 post. Have additional questions? Need more information? Consult with your local lender, or ask an experienced Realtor® for a referral to a mortgage broker or lender who can walk you through your credit questions.
Thanks for reading!
~ The Marti Reeder Real Estate Team