Buying a home is the single largest purchase most people make in a lifetime, and your credit score will never matter more than it does when you decide to buy a home and need to apply for a mortgage loan. So what, exactly, is a credit score, and how does it affect financing?
Your credit score is not a random number. It is a rating that determines your credit worthiness. When you apply for any kind of credit, whether it’s for a new charge card or a car loan or a mortgage, the company you’re trying to establish credit with will pull a credit report to determine first, if they are willing to extend credit, and second, what terms they will offer. The amount of money you qualify to borrow and the interest rate you’ll pay are the most critical elements of your real estate transaction, so it’s important to understand how credit scores work.
There are a number of factors used to determine your credit score, and they’re listed here by percentage of consideration:
The most critical component is a history of paying bills on time, as it demonstrates not only your ability to pay, but also your commitment to pay your debts. Once a lender has this information, they will use it to determine your worthiness. The higher your rating, the better terms you will qualify for. Lower scores will be penalized by higher interest rates, which means a higher monthly payment than someone with a better score borrowing the same amount of money.
Colleen Donlevy-Burns, Your REALTOR Advisor For Life, always recommends you get pre-qualified with your lender prior to starting your home search. That way, the home you fall in love with will be one you already know you can afford, and being pre-approved can also expedite the transaction. Call her today at (407) 325-2873.