House hunting and credit: What you need to know
By now it’s something of a cliché to call home ownership the American dream. But even if sitting on your own deck, looking over your picket fence, and sipping lemonade doesn’t move you, home ownership still remains one of the best ways to build wealth. For many, owning a home is cheaper than renting. It may also be the biggest investment you will ever make. Thus, it’s both a dream and a practical financial move.
So while it’s perfectly fine to dream about the Carrera marble you want in your bathroom or the pergola over the patio, the path to owning your own home involves taking the time to do some financial sightseeing.
As a leader in creating credit scoring models, VantageScore Solutions has made it a priority to educate consumers on the important role that credit plays in buying a home.
Whether you’re about to set out to buy your first home or if you’re getting ready to sell and buy another home, here are the basics of how credit impacts the home-buying process.
If you’re like most people, you’ll probably need to take out a loan. If you don’t, and you’re all set to pay cash for your home, count yourself among the lucky few!
A huge part of taking out a loan involves your credit score. Basically, you must prove to lenders that you can be a responsible borrower and can be trusted with a mortgage of tens of thousands of dollars. A credit score is proof of this trustworthiness.
Different kinds of loans have different credit requirements. Some loans require you to have a credit score of at least 620, although it is possible (with some difficulty) to obtain loan approval with a credit score in the range of 500 to 579.
But getting approved is only part of the story.
Better credit, better rate
Home loans come in all shapes and sizes. Some are fixed, some have adjustable rates, lower interest rates, longer terms, and the list of options goes on. Just like anything else, some loans are better for you than others. A good credit score is likely required if you want to get a loan with the lowest interest rate.
The reason is that a higher credit score shows lenders that you are better at managing debt and have a history of responsibly repaying loans. As a result, the lender takes on less risk when lending you money. The smaller the risk for them, the better the interest rate for you.
Your credit score can also determine how much of a down payment you will need to make.
While there are clearly more nuances to the process, your credit score plays an instrumental role in determining the type of loan you qualify for. Therefore, before you go to your first open house, check your credit score.
VantageScore Solutions provides an accurate, easy-to-understand credit report that is becoming an industry standard. Knowing your credit score will help you plan, budget, and come up with a realistic wish list for your new house.