Why Your Credit Score is Important When Buying a Home
If you're in your early 20's or maybe even younger, you may not realize the importance of your credit score, or that you even have one. Some people don't even realize that their credit score stays with them their entire life and is constantly changing. Those of us a little older should have a better idea of what we're up against.
Better Credit Means Better Interest Rate
When applying for a mortgage application, a strong credit score is crucial. Your credit score is the TOP determining factor as to whether or not you qualify for a mortgage loan simply because it's an indicator to the bank the likely hood that you'll pay back the debt you owe.
In layman's terms, your credit score is a number that is based on your past borrowing performance. The higher your score, the better your rate is going to be.
Credit scores are rated by three different bureaus and are typically judged in four different categories:
Excellent - 720 or higher
Good - 660 to 719
Fair - 620 to 659
Poor or bad credit would be considered a score less than 619.
Minimally You Need a 620 FICO Score to Qualify
For most mortgage loans, you need at least a 620 credit score to qualify. However, my company can do all the way down to 580 on a FHA loan.
Get Pre-Approved
Before you start home shopping, go to a LOCAL lender like myself FIRST and get pre-approved.
During the pre-approval process the loan officer will determine how much you can borrow thus giving you good, quality search parameters for your house hunting criteria.
Trust me, you don't want to go look at a $350,000 house only to find out you don't qualify for it.
What Else Matters When Buying a Home?
To keep it short and simple, during the pre-approval process the loan officer collects your most recent two years tax returns and W-2's, 2 months of bank statements, any savings accounts including IRA's or 401K's you may have, and 1 months pay-stubs. He or she will also determine what your debt to income ratio is, or how much money you have coming in versus how much money you have going out each month.
Depending on how much liquid money you have saved up, the mortgage broker will determine what type of loan you qualify for and your down payment.
Minimum Down Payment
The minimum down payment is going to be 3.5% of the purchase price. In other words, if you want to buy a $350,000 home, you will need $12,250 for your down-payment. In addition, know that you'll need an additional 2 - 5% for closing costs, which include your title and escrow fees, appraisal, notary, and other fees. In some situations you may be able to ask the seller to cover all or some of your closing costs (but that's another topic for a latter blog.)
I know the mortgage application and loan process is a very overwhelming but that's why you work with a lender you trust and who is easily available to meet with you. The last thing you want is a lender who doesn't pick up the phone or return emails. With a LOCAL mortgage lender, you will be able to stop in their office and meet with them, very important.
To see if you qualify for your next home purchase, please give me a call or text me at (760) 574-8486. I will help you decipher everything there is to know about the mortgage application and the entire process from start to finish.
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