Your credit score plays a crucial role in your ability to secure a conventional mortgage. Your lender will use the score to gauge your creditworthiness and decide on the terms of your loan. Knowing how your credit score will impact your mortgage application can help empower you to make wise choices and start laying a solid foundation that improves your odds of getting favorable terms. Let’s explore this a little more!
What is a credit score?
Your credit score is a numerical representation of your credit history. The score typically ranges from 300 (low) to 850 (high), and it reflects your ability to manage debt and make timely payments. The higher your score is, the better your mortgage terms are likely to be.
How does your score impact your conventional mortgage?
There are several ways that your credit score impacts your mortgage terms, including:
- Interest Rates – Borrowers who have a higher credit score can generally expect to see lenders offer lower interest rates. Over the course of a 30-year mortgage, even slightly lower interest rates can lead to significant savings.
- Loan Approval – A higher credit score increases your odds of being approved for a conventional mortgage. Some lenders may have extremely strict requirements, especially for larger loans, but most will look for a minimum score of around 620.
- Downpayment Requirements – Borrowers with a higher credit score often qualify for programs that allow for lower down payments, whereas those with lower scores often need to put down a larger amount to offset the perceived risk.
How to improve your credit score before applying for a conventional mortgage.
If you want to apply for a conventional mortgage, there are a few things you can do to boost your credit score. It’s better to start sooner rather than later, as your credit score can be slow to rise.
- Pay down existing debt.
- Make on-time payments.
- Limit applications for new credit.
- Check your credit report, review it for inaccuracies, and be sure to dispute any errors.
Whether you’re a first-time buyer or want to refinance, taking control of your credit can make a huge difference in your home-buying journey.