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If you’re starting to to look for a new home, especially if you’re a first-time buyer, there’s a lot to think about — especially when it comes to financial obligations and the loan process. One of the most important criteria lenders take into consideration from the get-go is your credit score. And why? Because a borrower’s personal credit score helps lenders assess if you’re a good risk, which translates to your ability to both secure and repay a loan.
Higher scores demonstrate to lenders that you make sensible financial decisions. The results of your credit report also boost their confidence that you can meet the long-term obligations of buying and owning a home. That means the ability to successfully transition from renting to paying a monthly mortgage, property taxes, homeowner’s insurance, and all the responsibilities homeownership entails.
The higher your credit score, the lower your interest rate. And vice versa — the lower your credit score, the higher your interest rate will probably be. So when it comes to getting a more favorable loan, the higher, the better.
It’s important to keep in mind that lenders will take a very close look at your payment history, amount of debt you have incurred, span of credit history, any new credit or credit inquiries, and the type of credit cards you have.
According to mortgage loan experts, if you’re gearing up to buy your first home, be sure to get all your financial ducks in a row. That means pay all of your bills on time and don’t overextend with additional debt immediately before or during the home purchase process. The lender wants to see that you have ample room to handle your monthly payment.
Of course it’s only natural to start thinking about furniture and other big-ticket items for your new home, but it’s best to be prudent and wait until you have closed escrow. Making large purchases with a credit card, such as furnishings (or a new car) can adversely impact your credit score. Remember, lenders will be keeping an eye on your credit throughout the entire loan process until the very end, so be patient — your beautiful new home is worth all the effort!
While FICO scores range on a scale from 300 to 850, there are ultimately many variables when it comes to assessing who is a qualified applicant. For instance, employment, income stability and debt-to-income ratios all matter. It’s helpful to know there are many different loan programs and options available to accommodate a borrower’s FICO scores. So, with that in mind, it’s certainly possible to qualify for a loan if your credit is around 600 and above.
Because everyone has a unique financial situation, the best course of action is to consult with KBHS Home Loans®.* A highly qualified mortgage loan officer can offer expert advice and guide you every step of the way to help you secure a loan that best meets your individual priorities.
Buying a home (especially if it’s your first), is one of the most important, exciting decisions you’ll ever make. And yes, your credit history and financials will be in the spotlight. But remember, it’s just one part of the process and before you know it, you’ll be moving into and furnishing the new home you always dreamed of.
*KBHS Home Loans is an Equal Housing Lender.
- Nancy C, Apopka, FLSee More