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What is the Ideal Credit Score for Landing a Mortgage

mortgage tips

Switching from renting to owning a home is one of the best decisions someone can make nowadays. That’s because renting a home is often more expensive than buying one. Last year, a report published by GoBankingRates found that the average monthly mortgage payment in Florida was just $1,376, while the average monthly rent was $1,543.

However, getting a mortgage to purchase a home isn’t always as straightforward as many people think. After the financial crisis of 2007-2008, mortgage lenders have adopted stricter lending standards to ensure that borrowers can afford their mortgages.

Currently, mortgage lenders use several factors to analyze a borrower’s ability to repay his or her debt. The credit score is a primary consideration. By simply checking your credit score, a lender will be able to determine the type of mortgage you can qualify for, the amount and interest rate he is willing to offer, as well as the terms and conditions of the loan.

Mortgage Tips: Credit Score Requirements to Buy a House

When it comes to buying a home with the help of a mortgage, there are many different mortgage tips you can use to make the most of the financing options available today. Here, we’ve gathered the most important mortgage tips that focus on the credit score.

In general, the minimum credit score requirements depend on the lending institution that issues the mortgage. For example, the minimum credit score for conventional mortgages is typically 620. However, a lender may require a lower or a higher score, depending on how much you can afford to pay as a down payment. The home buyers who put less than 20% of the home value down are often required to purchase private mortgage insurance (PMI).

If you intend to apply for an FHA loan, you need a minimum credit score of 580 in order to qualify for this loan and take advantage of the 3.5-percent down payment option. The applicants with credit scores below this threshold can still qualify for an FHA loan as long as they can make a larger down payment.

The VA loan is another great alternative for home purchasing. Besides the fact that this type of loan doesn’t impose a minimum down payment, it has relaxed credit score requirements. First, it’s essential to know that the VA doesn’t require a minimum credit score. However, lenders have their own in-house requirements, which depend on the level of risk each lender is willing to take on the loan. Most of them accept applicants with credit scores of at least 580.

The Importance of Having a Good Credit Score

According to experts, a good credit score is an excellent starting point for securing a mortgage. But what exactly is a good score?

To help you gauge where you stand, let’s review the FICO credit score scale. According to this scale, a credit score above 800 is exceptional, a score between 740 and 799 is very good, a score between 670 and 739 is good, a score between 580 and 669 is fair, while a score below 579 is considered poor.

If your credit score, for instance, is 640 or higher, you’re more likely to qualify for a mortgage compared to an applicant with a lower score. Additionally, the higher the credit score, the lower the mortgage costs will be.

Because mortgage lending is a risky business, lenders want to make sure that borrowers are able to pay their loans back. Applicants with poor credit scores are often considered high-risk borrowers. As a result, lenders might offer them higher interest rates, or worse, reject their applications. Consequently, improving your credit score before applying for a mortgage is one of the best mortgage tips you should consider.

When checking your credit score, lenders also gain access to your credit report, which includes outstanding debt and payment history. A good credit report will indicate that you’re reliable and have good money management skills. This will give your lender greater confidence that you’re serious about paying back your mortgage in a timely manner. If you’re an active duty or a retired service member with a less-than-perfect credit report, the VA’s Lighthouse Program can help you improve your score and get a VA loan to buy your dream home.

The employment status and level of income are two more things lenders verify before approving applications. As you’ll need to submit bank statements, W-2 forms, pay stubs, and a verification of employment form, make sure that you prepare all these documents before you start the mortgage application process.

If you’re looking for a home in Northwest Florida, our staff at Whitworth Builders will be happy to assist you in finding the best home for your needs. If you’re looking for a mortgage, feel free to contact our preferred mortgage lenders.