Before you jump head first into searching for your dream home, you need to ensure the basic foundation of your finances are in order. This includes reviewing and strengthening your credit. Here are the important things you need to know!
Why Does Your Credit Score Matter?
As a buyer, a strong credit score and clean report makes you a more desirable loan candidate. When deciding to approve you for a home loan, mortgage lenders take a deep dive into past car loans, student loans, credit cards, medical bills, and more. They also review your history of repayment and public-record information is included. If their findings are positive, they will be much more likely to approve you for a loan as well as lower interest rates and better terms or better loan repayment programs.
What Credit Score Do Lenders Desire
The credit score required for a loan depends on the type of mortgage you desire, the size of your down payment, and the loan company you want to use. According to QuickenLoans, most lenders require around a score of 620 or higher to be approved for a conventional mortgage, and "A Paper" buyers will have a score of 680 or higher to obtain lower interest rates and flexible repayment plans. For example, if a buyer wants to obtain a Federal Housing Administration (FHA) loan, they require a minimum score of 580 and, for a loan through the U.S. Department of Veterans Affairs (VA), score requirements differ depending on the private lender. If your scores are in the mid-700's or higher you'll have the smoothest loan journey.
Steps to Improve Your Credit
Reviewed your credit score and realized it may need some work? Don't despair, there are ways to improve your score. These include, but are not limited to, correcting payment errors on your credit report, ensuring you are making all credit card and loan payments on time, making smaller payments in between due dates, and paying down credit cards as much as you are able. Make sure there are not too many "hard pulls" of your credit all during the same timeframe, and also try to keep your overall credit card usage to a minimum percentage of the credit limit. It is generally agreed that 30% or lower is best, although keeping overall usage as low as possible is ideal.