Typically, a credit score of 620 or above will secure the most favorable terms for obtaining a mortgage. An elevated credit score can expedite the underwriting and approval process, while also securing a more competitive interest rate. Demonstrating a higher credit score indicates lower risk for lenders, as it suggests a consistent history of loan repayment and fulfilling financial obligations, including timely bill payments and covering expenses.
What if I have a credit score below 620?
For those with lower credit scores, home ownership can still be an option. You may need to have more funds available for a down payment, get a higher interest rate on your loan, or have someone co-sign on the loan with you.
Another option is using the FHA loan, a mortgage that is backed by the Federal Housing Administration. For those with credit scores above 580, a down payment of 3.5% is required. For those with credit scores between 500 and 579, a 10% down payment is required. This program is designed to make home ownership an option for those with lower credit while still working for lenders.
How do I improve my credit?
If you want to get the best financing terms, it can be helpful to take some time to improve your credit before applying for a mortgage. Small steps like paying your bills on time and maintaining a zero credit card balance can improve your credit over time. If you have adverse events on your credit report, such as a bankruptcy, you may need to wait longer for those to be off your credit report. Fortunately, this also allows you more time to save up for a downpayment. Overall, this makes you much less risky to lenders and more likely to get approved for a mortgage with great terms.
