Credit scores are a huge part of the mortgage pre-approval process. It not only determines your eligibility for home financing but can also determine what rate you will qualify for. Why? Because your credit score represents to lenders how risky of a borrower you are.
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Lenders use your median score from the three national credit bureaus, TransUnion, Experian, and Equifax. This number is known as your FICO score and can range from 300 to 850. The lower your score, the higher risk borrower you are.
A minimum of 620 is required by all mortgage loans delivered to Fannie Mae, but individual establishments may have a higher credit score requirement depending on the loan type and program. Currently, Compass Mortgage has the ability to finance FHA loans to eligible borrowers with credit scores as low as 560.
However, if your median score falls below the minimum there is still hope for homeownership. There are several ways to improve your credit score including making on-time payments and keeping balances low on revolving credit lines.
Your lender also may be able to assist you with increasing your score by using a process known as “rapid resoring”. A rapid rescore is a simulation run by your lender to estimate how much your credit score could improve by taking certain actions, such as paying down a balance on a credit card.
Keep in mind that a rapid rescore is not a credit repair service; the process is used in certain circumstance to accurately depict a borrower’s creditworthiness.
Knowing and understanding your credit score is an important component of managing your finances. Any time you apply for financing or a source of credit, your credit report is pulled. Be sure to ask the institution running your credit to give you a copy of your scores for your knowledge.
If you want to know where your credit falls in regards to home financing, contact one of our mortgage bankers. For more information on homebuying, refer to our Mortgage 101 Handbook, a go-to for anyone thinking of buying their first home.