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Highlands Residential Mortgage Resources

How Do Credit Scores Impact Home Buying?

By: Highlands Residential Mortgage

Your credit score is a key factor in determining whether you can obtain a mortgage and what interest rate you will get. A credit score is a three-digit number that ranges from 300 to 850, and it reflects an individual’s creditworthiness based on their credit history.

Let’s take a look at a few elements:

  • How does your credit score affect your application for a mortgage?
  • What’s the minimum credit score needed to qualify?
  • What are some tips to keeping (or getting) a healthy credit score?

How Does Your Credit Score Affect Your Application for a Mortgage?

Lenders use your credit score to assess your risk as a borrower and decide whether to approve your application. Your credit score will also help determine how much money they lend you and at what interest rate. For first-time homebuyers, maintaining a healthy credit score is crucial to obtaining favorable terms and approval.  A higher credit score can often lead to lower interest rates, which could mean a lower monthly mortgage payment.

What’s the Minimum Credit Score Needed to Qualify?

The minimum credit score required to buy a home can vary depending on the type of mortgage you are applying for and the lender’s underwriting guidelines. However, for a conventional mortgage, a credit score of 620 or higher is typically required. For a government-backed loan, such as an FHA loan, the minimum credit score is typically 580.

Minimum Credit Score Needed to Buy a House by Loan Type *

  • Conventional Loan | Credit Score: 620
  • FHA Loan | Credit Score: 580
  • VA Loan | Credit Score: 580
  • USDA Loan | Credit Score: 640
  • Jumbo Loan | Credit Score: 680

*These are typical credit scores by loan type.  Required minimum scores may be affected by loan program, loan purpose LTV, AUS approval, etc.  If you have any questions, please reach out to a Highlands loan originator in your area.

What Are Some Tips to Keeping (or Getting) a Healthy Credit Score?

Here are some steps first-time homebuyers can take to ensure they have a healthy credit score leading up to and during the mortgage process:

  • Check your credit report and score: Before applying for a mortgage, you should review your credit report to ensure that all information is accurate. Errors in your credit report could lower your credit score and hurt your chances of getting approved for a mortgage. Free online websites to check your credit score are great for getting an idea of where you stand with your credit.
  • Pay bills on time: One of the most important factors in your credit score is your payment history. Paying bills on time, every time, can have a significant positive impact on your credit score.
  • Keep your credit card balances low: Your credit utilization ratio, or the amount of credit you’re using compared to your credit limit, is another factor in your credit score. Keeping your balances low can help improve your credit score.
  • Don’t open new credit accounts: Opening new credit accounts can lower your credit score, as it indicates that you may be taking on more debt than you can handle. Avoid opening new accounts leading up to and during the mortgage process.
  • Don’t close old credit accounts: While opening new credit accounts can hurt your credit score, closing old accounts can also have a negative impact. Closing an old account can shorten your credit history and reduce your available credit, which can lower your credit score.
  • Don’t take on new debt – taking on new debt, such as a car loan, can negatively impact your credit score and make it more challenging to qualify for a mortgage.

As you can see, a credit score is an essential factor in determining eligibility for (and pricing of) a mortgage. As a first-time homebuyer, it’s important to take steps to maintain a healthy credit score leading up to your home purchase and during the mortgage process. By doing so, you can increase your chances of qualifying for a mortgage and securing a better deal.

This should help you get a good start. If you have any questions, don’t hesitate to reach out to your Highlands loan originator. Not working with a Highlands loan originator yet? Click HERE to find one in your area.