Before you decide to buy a home, it’s essential to make sure your credit score is in good shape – this is one of the preliminary checks lenders will use to qualify or disqualify you for a loan. Most consumers don’t understand that good credit opens doors to loan availability and low interest rates.
Mortgage lenders and banks scrutinize your credit report carefully. If you have bad credit you’ll severely limit your credit options. And it’s even worse if you’re looking to buy a home with a 15- or 30-year mortgage — a percentage point in either direction can make huge difference in the amount you’ll end up repaying over the years.
So the question remains, is your credit good enough to get a mortgage?
Is My Credit Good Enough?
While most lenders use your FICO score to determine your credit risk and interest rate, there’s no set number that will ensure you’ll be approved. Lenders also consider a variety of other factors:
- Stable employment (2+ years of paystubs)
- Household income
- Debt-to-income ratio
- Credit history
- Financial history (i.e. a bankruptcy or foreclosure)
With that being said, below is a basic overview of how your credit score impacts your mortgage eligibility:
Score of 750-850
Borrowers with FICO scores between 750 and 850 will be offered the best mortgage rate possible. Lenders will basically roll out the red carpet for you.
Score of 700-749
Scores between 720 and 749 are “good” – expect to be offered very low interest rates, with better-than-average terms. However there are some state laws in which borrowers with credit scores below 740 may have added costs to their loan (usually in interest rate or mortgage points).
Score of 650-699
Scores that are between 660 and 699 means your credit rating is “good” – you may not get fantastic rates, but you will get a decent loan.
If your FICO score falls between 640 and 659 your credit is merely OK (or “fair”). You probably can get a loan, but you’ll end up paying a pretty high interest rate. You should work on improving your score before you get a mortgage.
Score of 600-649
Scores below 620 will place borrowers in the “subprime” category. That’s not good. Even if you’re approved for a mortgage loan you’re going to see very high interest rates and stiff penalties for any infraction (i.e. missed or late payment).
We suggest paying off your debts before applying for any type of loan.
Scores below 600
Borrowers with a FICO score below 600 are considered a poor risk with a high probability of defaulting on a loan. Lenders will charge you very high interest rates or refuse to lend to you at all.
If your score is less than 500 you’re unlikely to qualify for a mortgage loan, or any loan for that matter. Our best recommendation for getting a mortgage is to wait it out, start paying off your debt and then apply for a traditional mortgage.
FYI: It may take 1-3 years to fully rebuild your credit to the point where you’ll be approved for a home mortgage loan.
Request Your Credit Report
Also remember to check your credit report at least once per year to make sure you’re on track.
To request a free copy, you can contact the credit reporting agencies directly:
- equifax.com: (888)-548-7878
- experian.com: (888) 243-6951
- transunion.com: (800) 916-8800