Mortgage Myth: “My credit score isn’t perfect. I don’t think I’ll be able to qualify for a home loan.”
Truth: Your credit score doesn’t need to be perfect in order to qualify for a mortgage. Lenders will look at your whole financial package when assessing your qualification. Even if you’re not at a perfect 850, you may still qualify.
Why Do Credit Scores Matter?
Would you lend a friend money who takes a long time to pay you back – or may not pay you back at all? Mortgage banks and financial institutions consider the same type of questions when deciding if you’re qualified for a home loan.
A high credit score proves that you have a history of meeting your financial obligations. It also shows that you pay your bills and pay them on time. When lenders see that great score, they have better assurance that you will pay back the money loaned to you.
Credit scores range from 300 to 850. The general rule with credit scores is the higher your score, the lower your interest rate. Typically, scores of 700 and above are ideal for obtaining a lower interest rate. In summation, it can be very beneficial and save you money on interest payments if you have a high credit score.
Looking at the Big Picture
Credit scores are just one aspect of your whole financial picture. Don’t get discouraged if your score isn’t perfect – lenders look at other components of your finances to determine if you will qualify for a loan. Here are the other key factors that will impact your qualification:
- Down Payment
- Income & Job History
- Front- & Back-End DTI Ratios
If you’re offsetting a lower credit score, it can help to have a more substantial cash down payment available.
Proof of a steady income and an extensive job history improves your chances of approval.
Debt-to-income ratios are comprised of your monthly debt payments, divided by your gross monthly income. Both the front- and back-ends are factored against each other to calculate a percentage. If your credit score is less than ideal, keeping your DTI percentage low will be important.
Put In the Work
As mentioned before, obtaining a high credit score is a worthwhile goal, particularly when applying for a home loan. However, if your score is low, there are some relatively simple steps you can take to boost your credit score. The key is to make sure you keep working to improve your credit score and check your credit report annually to verify all the information is accurate. Depending on your situation, it may be worth delaying buying a home while you work to increase your score.
Struggling to boost your credit score? Check out our blog for some helpful tips:
Our experienced mortgage bankers are always here to help. If you have questions about whether you can qualify for a mortgage with your current credit score, Give Us a Call! We’ll assess your financial situation and help get you on the path toward homeownership.