Buying your very first home may come as a breeze if you are someone who happens to have very good credit. You may not get turned down just because your credit score doesn’t categorize as “good” credit, but you will definitely not get the best interest rate out there. Good credit scores will definitely come in handy when you get ready to buy your first home. They definitely will look for good credit, but may give you an exception but will make your interest rate a lot higher. So you may be asking, what credit score do I need to buy a house? Ideally, a first-time home buyer should work to get their credit score to 700 or more for the optimal interest rate.
Credit Score for First Time Home Buyers
A 700 credit score will get you in the home you want and not just end up settling for something that you do not too much care about. Buying a first home may come off as a bit unsettling for some, or some may be a bit anxious about buying your first home. The best thing that you can do is a lot of research prior to buying your home. Your credit score will also matter a lot more if you are trying to buy a mansion versus just a tiny 2 bedroom house. The best piece of advice to give yourself is to just be mindful of those things prior to finding a home. You want a good credit score, but you will also want to make sure that you find a home that is in your price range and nothing out of the ordinary that will require you to have a very high credit score.
Once you begin finding something that is within your price range, do a little research to see what you think may me the best credit score in order to get approved for a mortgage loan. The process may not be as hard as you may think.
Further Reading – Personal Finance & Security: How to Stay Safe From a Credit Card Breach
When it comes to getting a mortgage, your income and the down payment are both important factors. But they aren’t the most important factor. That would be your credit score. Not only does is a good credit score needed for approval to buy a car, boat, or home, but it also will play a major role in whether you get a low interest rate or not.
Credit Score for Low Mortgage Rates
Though it varies from lender to lender, you generally need a credit score of somewhere between 720 and 760 to get the lowest interest rate possible. This is usually the rate that the bank or mortgage broker advertises. Though many lenders will give mortgages to people with scores as low as 620 and even lower, the interest rate will be much higher.
While your credit score is the most important factor in getting a low mortgage rate, it isn’t the only one. If you are getting a loan through a government-backed program, such as a VA or FHA loan, you may not need a high score to get the best rate available. You also may be able to get a lower interest rate by paying points, which are upfront payments you can make to lower your interest rate.
Why Getting a Low Rate is Important
Because mortgages are such long-term loans, usually with 15- or 30-year terms, even small increases in the interest rate can mean you pay thousands or even tens of thousands more in financing costs over the life of the loan.
Improving Your Score
If your credit score isn’t high enough to get the lowest interest rate available on a mortgage, there are some things you can do to improve it. Pay off any past-due balances as soon as possible, and reduce the amount of debt you are carrying on your credit cards. Always stay vigilant regarding your financial security, and conduct regular security audits of your credit card accounts. One breach and your score could be impacted, even if you are not liable for the unauthorized charges. You also should also avoid from taking out any new loans or credit card accounts, especially in the months preceding your loan application.
The following are a few facts about the relationship between mortgage rates and credit scores.
Your Credit Score’s Impact on Your Mortgage Rate
Credit scores can seriously affect your mortgage rate. For example, in recent years 720 has been considered a “good credit score” for those looking to purchase a house. Therefore, if a person had a credit score within the 700 range, they would most certainly receive a much better mortgage rate.
A customer applying for a mortgage with a credit score within the 500-600 range would certainly receive a higher interest rate then someone with an almost perfect credit rating. A poor credit rating is considered more of a risk to most banks and financial institutions. Therefore, the customer may still receive the mortgage however the interest rate will certainly not be as competitive.
Therefore, credit scores not only affect mortgage rates but they can determine interest rates on certain credit cards as well as the terms of certain loans. Prior to applying for a mortgage, it may be wise to obtain a copy of a personal credit report.
Credit reports give the consumer an overall view of their credit standing as well as the overall credit score. Some services are available through the Internet that will actually provide a yearly copy of a credit report for free.
There are also credit services available that will keep track in any changes in personal credit score. Once a change is detected in overall credit score, the consumer would be notified immediately.
High credit scores can certainly secure low interest rates on home mortgages. In addition, decent credit scores can also be quite helpful when a consumer is considering re financing options. The bank or financial representative can explain these options prior to applying for a new mortgage.
A first time mortgage applicant with a high credit score would more than likely be offered an interest rate which may be hard to match. An mortgage interest rate of 2.8-3% would be considered a competitive interest rate available to only certain individuals.