What You Need to Know About Your Credit Score Before Buying a Home
The most important factor to home loan lenders is your credit score. Do your research for your credit score before buying a home. Knowing that you have to make sure to have the best credit score possible. Because your score will reflect whether or not you qualify for a loan and kind of interest rate you will get. Also how much you will be paying for homeowners insurance.
Why should you care about your interest rate?
The only thing you need to focus when getting a home loan is getting a low-interest rate. Because the interest rate has a pretty big impact on how much your monthly mortgage payments will be and how much you end up paying interest over the years.
So how does your credit score relate to your interest rate?
If you have a credit score of 750 and above you will most likely get the best interest rate available. (because it’s considered as an excellent score)
If you have a credit score from 650 to 750, your interest rate can be from a quarter to a half percent higher than the lowest one, this is also considered as a good score.
A poor credit score is from 550 to 650 or bad credit score of 550 and bellow, this means your interest rate can be much higher actually up to five percent higher than the lowest available rate, or you will not even qualify for a home loan at all.
That being said, here are some very important factors that make up your credit score if you are considering buying a home
Your payment history
This is a report of how well you have paid your bills over time. It includes late and skipped payments and it has the heaviest weight on your credit score. So try to maintain good payment history in order to have a higher credit score.
Your credit utilization
Credit utilization is how much you use from your available credit, also known as your debt-to-credit ration. If you max out your credit this sends a message to loan lenders that you may have excessive debt. If you are aiming for a good score your credit utilization shouldn’t be higher than 30% of your available credit, if you like to have an excellent score try 20%.
Your credit history
Your credit history shows how long you had your accounts and as well as any account activity. The longer your history is, the better for the loan lenders and for you. But make sure you have a good credit history that can be used to determine your creditworthiness.
Your new credit
Try not to have for too many credit applications in a short period of time. You don’t want a lot of hard inquiries on your report. Lenders can get concerned as to why you need so much credit at once. So when you are planning to buy a new house limit your new credit accounts and inquiries.
The types of credit you have
Lenders also look at the variety of different credit accounts you have (e.g. credit cards, mortgage, auto loan and student loans). This information is helping lenders determine how much “good debt” (e.g. a mortgage) vs “bad debt” (e.g. credit cards) you have, to determine your level of financial responsibility.
Extra tips for what do to before you buy a house
Check flood insurance for the house you plan to buy, also it’s a good thing to shop around and check multiple companies. In this case, we can help you a lot with your flood or home insurance. We can find you the best quote from multiple companies for flood and homeowners insurance in minutes. Also, here is a secret. Insurance companies don’t check your credit score for flood insurance so in this area you are good.
Be sure to keep these tips in mind for your credit score before buying a home. And when you purchase one, always shop around for homeowners insurance to protect your brand new house from the unexpected. Also, remember that we can compare homeowners insurance quotes from multiple companies and find the best price for you.