Even if you’re financially savvy, credit scores can be a confusing topic. When you’re looking forward to buying a home in South Florida, having good credit helps you qualify for a mortgage and boosts your chances of getting home loans.
A good credit score shows lenders that you’re likely to make your mortgage payments on time. Here, we discuss the factors that affect your score, why credit scores affect your ability to get a home mortgage, and credit score minimums for loans.
What Factors Affect Your Credit Score?
Credit bureaus use several factors to create your credit score that allows other companies to determine your interest rates on car loans and home loans. It also influences whether to offer you a mortgage.
The three major credit reporting agencies are TransUnion, Equifax, and Experian. The credit score they report for you is often the one called a FICO score, but there are other metrics. Factors used to determine a credit score include, but aren’t limited to:
- Whether you ever had a bankruptcy
- If you had any debt sent to collections
- The percentage of available credit you’re using
- Your bill payment history
Why Do Credit Scores Affect Your Ability to Get a Mortgage?
Mortgage lenders understand that lending money is risky, which is why they want to mitigate that risk. Using your credit scores and the research that goes into those scores is how they lower their risk. They know you’re more likely to repay them if you have a higher credit score. If you have a lower credit score, they know that lending you money involves greater risk.
Can Credit Scores Affect Interest Rates?
Your credit score can affect your interest rates, which, in turn, affects your monthly payment and how much you end up paying back on your home loan. You qualify for the lowest interest rates when you have a credit score between 760 and 850. If your credit score is between 620 and 639, you’ll have the highest interest rates on your home mortgage.
What Are the Credit Score Minimums for Loans?
Different loans require different credit score minimums. For example, an FHA loan only requires a credit score of 500, while a Jumbo loan requires a minimum of 700. USDA and VA loans require a score of 640, while conventional loans require a minimum score of 620.
If you’re looking into buying a home in South Florida, but your credit score isn’t the greatest, there are actions you can take. Keep your credit usage at around 30%, pay down your credit, and avoid closing old credit card accounts. Ace Mortgage Loan Corporation is here to help you navigate the market, putting your needs first. Contact us today to take the next step toward homeownership.