If you’re like most of us (that is, not independently wealthy), you will need a mortgage loan in order to buy a house. Whether you can qualify for a mortgage and how much you can qualify to borrow depend largely on your credit score. In short, the higher your score, the better off you’ll be. So let’s see how your credit score affects your ability to buy a house in Atlanta.
Credit Score Overview
Mortgage lenders check an applicant’s credit score in order to assess her level of risk as a borrower – that is, her ability to repay and the likelihood of repaying the loan Lenders use your credit score to determine the loan amount and interest rate to offer when you apply for a loan to buy a house. Here are the key points to keep in mind about this . . .
- Mortgage lenders use your credit score to determine your suitability as a borrower for a mortgage loan, using your score as an indicator of how likely you are to repay the loan.
- If you have a higher credit score, you can earn lower interest rates and thus pay less over the life of the loan. With a lower score, you’ll get higher interest rates and wind up paying more over the life of the loan.
- Lenders also look at your debt-to-income ratio. This is related to your credit score and is a ratio that involves the percentage of your monthly income that goes toward debt payments.
- If you intend to buy a house in Atlanta, you need to know your credit score and debt-to-income ratio before applying for a mortgage.
How Credit Score Affects Ability to Buy a House
There are three important ways your credit score can affect your ability to buy a house . . .
- Your credit score profoundly impacts your odds of being approved for a mortgage. If you have a low score and poor credit history, your lender may not offer you a mortgage loan.
- Your credit score (as we mentioned) also affects the mortgage interest you can get, which affects the amount of the monthly mortgage payment and how much you wind up paying over the life of the loan. Generally, a higher score will get you a lower interest rate, and a lower score means a higher rate.
- A higher credit score also puts you in a position to be able to take advantage of more lender options.
Credit Scores Needed for Loan Types
Credit scores can range from 300 to 850 and are used by lenders to assess your creditworthiness for various types of loans to buy a house. Different types of loans carry different minimum credit score requirements, such as . . .
Because conventional loans don’t have any government backing, they usually require a higher credit score than other types of loans. Conventional loans typically require a minimum credit score of 620 or higher. These loans are best suited for borrowers with higher scores and some money saved up for a down payment.
FHA loans are insured by the Federal Housing Administration and so require a minimum credit score of around 580. Still, a higher score may help you qualify for a better FHA loan interest rate.
VA loans are also government-backed and a very good option for veterans and qualified service members. For these loans, there is no set credit score minimum to buy a house, though it is sometimes in the upper 500s.
Professional Assistance to Buy a House
As you can see, then, your credit score does affect your ability to buy a house. You do have options, though, but it’s often difficult to sort through all the numbers and requirements. An experienced Atlanta agent can help you make sense of it all and determine the best course for you. So when you’re ready to buy a house in Atlanta, be sure to contact us at (404) 977-5054.