Applying for a mortgage is a big, exciting step in the home buying process. Lenders may examine your financial life when you apply for a home loan, including your credit score and credit reports. And understanding how your score impacts your mortgage matters.
How Lenders Use Your Credit Score
A credit check may be standard when applying for a mortgage. If you were pre-approved for a home loan, your lender may have already checked your credit report and score from each of the three major credit bureaus. Once you’ve made an offer on a home and it’s been accepted, the lender may pull your credit reports and scores again as part of the underwriting process.
At this stage of the mortgage process, your lender uses your credit score, along with other financial information, to determine whether to approve you for a loan. The minimum credit score you need to qualify may depend largely on the type of mortgage you applied for and the lender’s specific requirements.
If your credit score falls below a certain mark, you may still qualify for an FHA loan. These loans can be good for people who are buying a house with less than perfect credit because it may be possible to qualify.
Credit Score and Your Interest Rate
Your credit score may come into play at another critical step in the mortgage process: determining your interest rate.
Again, while it’s not the only factor that affects your interest rate, your credit score is important. A higher credit score often means that you may qualify for a lower rate, while buying a house with less than perfect credit may translate to a higher mortgage rate.
Understanding the rate you qualify for, based on your credit score and other factors, is critical because it directly affects your monthly mortgage payment and how much you’ll pay for your home over the lifetime of your mortgage loan.
Learn How to Grow Your Credit Score
When you break down the numbers, it’s clear how valuable good credit can be when buying a home. To get your credit in shape before you buy, check out this short guide on everything you need to get your credit score in order.