2020 brought us more than our usual share of surprises, including the lowest interest rates in decades1
. This news may have you wondering if your current credit score will qualify you for a mortgage, especially one with a low rate. If you are, you’re not alone.
In addition to not knowing the current credit score, many homebuyers believe that home loans require higher credit scores than they actually do. So now’s a good time to get credit-savvy and decide your next move.
How your credit score is determined
When consumers make on-time bill payments, this makes credit agencies happy. It also has the most (35%) impact on a credit score. However, four other factors also come into play.
- Balance-to-limit-ratio, based on each of your credit account balances vs. available credit lines, has a 30% impact.
- Credit history, which is how long a consumer’s accounts have been open, has a 15% impact.
- Types of credit accounts that are currently open have a 10% impact.
- New credit inquiries (not including “soft inquiries”), which usually happen when a consumer applies for a new credit account, has a 10% impact.
A soft inquiry is when you check your own credit or when a lender or credit card company checks your credit to preapprove you for a loan. Soft inquiries do not impact your credit scores.
Review your credit report
Download a free copy of your Equifax, Experian, and TransUnion credit reports from annualcreditreport.com. If you see any errors, you can file a request to have them corrected online. These credit reports do not include your FICO score - generally, this is available for a fee. However, some banks and credit cards provide this service to their members.
Different scores, different loans.
Since our mission is to help more people achieve homeownership, we offer a wide variety of home loan options, including Conventional, FHA, VA, and USDA loans.
The minimum credit score to apply for a Conventional home loan with Compass Home Loans is 620. The VA and USDA do not set a minimum credit score requirements, but most mortgage lenders set their own minimum credit score for eligibility. To be eligible for a 3.5% down payment with an FHA home loan with Compass Home Loans, you will need a minimum credit score of 580. We also offer many other home loan programs that have low credit score eligibility.
Is your next home in a sellers’ market?
If housing prices are climbing in the area where you want to buy a home, you may decide it’s better to proceed now, even if your credit score is not excellent. Here’s why: Even though you may pay a higher interest rate for your mortgage, postponing your home purchase may end up with you paying considerably more for the same size house in the same neighborhood.
For a no-obligation review of your home loan eligibility, and to learn about your home loan options, contact a Compass Home Loans mortgage professional today!
Source: Freddie Mac
Sep 30, 2020