If you’re thinking about buying a home and you’re not someone who has hundreds of thousands of dollars of cash available, then you’ll need to secure a mortgage loan. In order to do so, you’ll have to provide financial documentation to the lender that documents your proof of income. Usually, lenders are looking for at least two years’ worth of earnings. In addition to income, there’s another major factor that can impact your ability to get a loan: your credit.
Your credit score will play a big role in your ability to get a mortgage. This is because your credit score shows how lenders—what the mortgage-lending institution will potentially soon become—rate you as a borrower. If you have a good credit score, this gives your mortgage lender more confidence that you’ll repay your loan on time and in full.
While it can vary slightly from person to person and based on circumstance, in most cases, you’ll need a credit score of at least 620 to secure a mortgage loan. That being said, you may be able to secure a mortgage loan with a lower credit score, but that will probably mean worse loan terms—perhaps a higher interest rate, for example (this is also the case if you’re unable to put 20 percent down). Note that if you’re securing a VA loan, there is no minimum credit requirement set by the administration, although individual lenders can set minimum requirements.
A good credit score (above 620) can get you started on the process of securing a loan, and a great credit score can get you more favorable loan terms. A credit score above 720 is considered excellent and can assist you in securing the best loan rates and terms.
If you need to improve your credit before you can get a loan, there’s no time to start like the present. Improving your credit score starts by paying off your credit cards in full. If you can, avoid late payments at all costs. In addition to paying down your cards as fast as possible, also pay attention to your credit utilization rate—if you are using more than 30 percent of your total credit, this could hurt your overall score.
To learn more about credit scores and how they can impact your ability to secure a mortgage and your mortgage rates, call The Jana Caudill Team. We can help you to understand the financial elements of buying a home, and help you to find the perfect home once you’re ready and pre-approved. Call our real estate team in Northwest Indiana today to get started.