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CreditGUARD of America

See How Much Money We Can Save You!

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Mortgage Rates Based on Credit Score

Concept of home buying and money illustrated by stacked coins and woman holding model house

How much you can afford depends on the type of home you’re looking for, your annual income and potential debts you owe. Being well-informed about your finances will make it easier when it comes time to start looking for loans.

Where to Start

The best way to gauge your budget is to check your credit score. While buying a house used to require a near-perfect credit score, it’s becoming easier to get a mortgage. Banks have begun loosening the requirements and are now starting to accept consumers with varying credit. But that said, the terms of your mortgage will still largely depend on what your credit looks like.

Equifax, Experian and TransUnion are the three main credit reporting bureaus, and you’re entitled to one free credit report per bureau per year. So if you’re in the market for a new house, the first step is to access your credit report and know your credit score.

Credit scores range from 0-850, with 600 and above usually considered “good” credit. Most investors say having a credit score of 620 or higher will put you in better standing with creditors, which will make it easier for you find better loan terms. Here’s a more comprehensive breakdown:

  • 730 and over: very good credit
  • 700 – 729: good credit
  • 590 – 699: fair credit
  • 540 – 589: poor credit
  • 539 and below: very poor credit

Think of your credit score as a living, breathing document. It’s always changing, and every credit transaction you make can affect it. By paying off your debt and keeping your debt-to-income ratio low, you’ll be more likely to have a strong credit score.

Mortgage Rates and Credit Scores

Because lenders base mortgage rates they offer directly on your credit score, it’s important to know which scores denote which types of loans. Higher scores equal better loan terms, but what about lower scores?

  • Borrowers with scores above 700 are more likely to receive better loan terms with much lower interest rates
  • Borrowers with scores between 600 – 550 are often referred to as “subprime” borrowers, and will have decent loan options with various interest rates.
  • Borrowers with credit scores between 549 – 500 are usually the minimum scores for lenders to accept offering loans. Loan options will be scarce and interest rates will be much higher.
  • Finally, borrowers with credit scores below 500 may not qualify at all. If they do happen to qualify, rates and terms will likely be high.

The Cost of Moving: After-Purchase Considerations

Working to improve your credit score may help you find better mortgage rates, but what happens after you move in? Planning ahead for other financial considerations, such as house renovations, upkeep and furniture costs is often overlooked, and could end up costing you a small fortune in the long run. Contributing to an emergency fund will help make sure you keep your overall costs down while simultaneously helping you prepare for the future.

Experts say you should keep around 1-3% of your annual income saved simply for home upkeep and renovations. Plus, improving the quality of your home will improve its value, which will help you earn a better return if and when you decide to sell.

If you’d like help improving your financial situation, Call CreditGUARD Today!