Why Your Credit Score Matters when Getting a Mortgage

Why Your Credit Score Matters when Getting a Mortgage

Since the sub-prime market collapse, lenders have become more diligent with lending practices. Even those with good credit may find it hard to get a mortgage. Those with undocumented income or looking for bad credit homes must be even more persistent if they wish to secure financing.

Your FICO Scores

All three FICO scores (one from each credit bureau) are important when you want to buy a home. Since the lenders are likely to check them all, you should do so before applying for a mortgage.

Any one of these three scores could be very different and impact your chances of getting a loan. However, checking a generic score such as Credit Karma or myFICO may not give you a clear picture of your creditworthiness. Ask your lender which scores are used to qualify for the best rates available.

Work on Improving Your Credit Ratings

You can calculate your monthly payment once you know what rate you’re likely to qualify for. Mortgage lenders consider a FICO score of 760 or better a great indication of a low-risk borrower.

This means, if you are in this bracket, you get their best rates. Wherever you stand on the spectrum, aim to get all three of your credit scores as high as possible. Even a small improvement in your scores can save thousands of dollars a year.

It’s true that lenders don’t like taking on risky clients, so every step you take toward better credit will improve the terms you get when you do qualify for a loan. That means that it might be a good idea to hold off on applying for a mortgage if there’s a good chance you can improve your credit in the next six month to one year.

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