As of this writing, the average credit score in America has reached an all-time high…
Renting may be cheaper than buying a home in many places in America. But, unfortunately, renting does not earn you an investment the way buying a home does.
Suppose you bought a house last year and decided to sell it this year. Today, you stand to earn at least 10 percent more than the money you spent. This is because home prices this year grew an average of 13.2 percent compared to the same period in 2020.
This is why homeownership will always be part of the American Dream of millions of people. And with this in mind, getting a mortgage will be a rite of passage for those who cannot pay for a home purchase outright.
So how do you get qualified for a mortgage? If you have a 750 credit score, how good are your chances of getting the best terms?
Credit Scores and Mortgages
As long as you consider a mortgage application, your credit score will play a crucial role.
Your credit score is the primary factor determining whether you qualify for a loan and what kind of loan you will get.
Since you have a 750 credit score, this puts you in a very convenient spot as far as mortgages are concerned. You might have no trouble qualifying for any loan. You’ve probably earned this credit score because you’ve paid off your student loans, you always make on-time payments on your bills, and you keep your credit card balances low. Now is the best time to get into the mortgage application process, as long as you also have strong employment history and a good debt-to-income ratio. Those are other factors that lenders will be looking into during the mortgage approval process.
Residential Mortgage Credit Report
A 750 FICO Score belongs to the Very Good FICO credit score range. Of course, most people would do well to work on credit history first before filing loan applications. Still, with the kind of credit score you have, even if you lose a few points within a month before applying for a mortgage, it won’t make much difference to your loan chances. So congratulations are for your job well done!
However, we want to ensure no surprises around the corner, especially since one rejection can set you back a long way.
When you apply for a mortgage, the mortgage lender will request a Residential Mortgage Credit Report. Essentially, they will be getting not just one of your credit scores but all three. In case you are wondering, why three? We actually get three different credit scores from Equifax, Experian, and TransUnion, the three major credit bureaus in America. You would be lucky to get three FICO Scores that are the same, but the credit scores you can often get from these companies are usually slightly different.
If you got your 750 credit score from just one company, know that there are two more credit scores you have to find out. The good news is, we are all entitled to one free credit report each year from Annual Credit Report.
If you get three different FICO Scores, mortgage lenders don’t just get the average of these numbers and use that average as your official FICO Score. Instead, they disregard the lowest and highest FICO Scores and use the median value among the three. So if your 750 credit score happens to be the highest FICO Score on that list, it is of utmost importance that you find out what your official FICO truly is.
750 Credit Score Home Loan
Once you have your FICO Score figured out, what you will need to worry about are the following:
- What kind of mortgage should I choose for my future home?
- And how much money am I capable of putting down for a deposit?
To guide you in answering both, let’s find out the different types of mortgages you can consider.
If you don’t want to pay for private mortgage insurance
Since you’re borrowing funds, you should know that lenders will want to cover their backs, especially since home loans are hazardous due to the amount of money involved.
Most mortgages will require you to pay for private mortgage insurance (PMI). Unfortunately, this is not something that protects your loved ones if you pass away without completing payments for your mortgage. Instead, this is something that preserves the lender’s investment if you stop repaying your loan.
If you are getting the traditional type of mortgage called a conventional loan, PMI is unavoidable if you pay less than a 20% down payment.
The logic is, if you start with less than 20% home equity, you are not putting yourself on the line, and you have a higher chance of walking out on your loan. So, for example, you pay only a 10% down payment at closing. You have to pay for PMI until you reach 20% home equity. When you get to this point, you can already request your lender to stop charging you PMI. In case you forget to do this, PMI falls off by itself once you reach 22 percent.
Conventional loans have a minimum credit score requirement of 620; this is why with 750, you have a solid chance of getting approved. You can even qualify for jumbo loans, a type of conventional loan that will let you borrow a more considerable loan amount than usual. In addition, with this higher credit score, you are likelier to get a reasonable interest rate.
You really will be getting the best deal when you get a conventional loan and pay at least 20 percent. However, note that via traditional, the minimum money down is just 3 percent, so it’s really up to you how much you are capable of paying.
Federal Housing Administration loans are prevalent. So you might be wondering why we do not include it in our list of recommendations.
With a 750 credit score, you are already overqualified for this type of loan because the minimum credit score they ask for is 500. As far are as mortgage insurance is concerned, you will be getting the lesser deal here because even if you put down 10% at the start, you have to pay for insurance for eleven years. With conventional loans, at least, you will be paying for PMI within a shorter period.
FHA loans also target lower to middle-income earners. The application process is a lot more stringent since the federal government is responsible for backing this loan. Between FHA and conventional loans, only the latter serves as a good option for borrowers with Very Good credit scores.
If you don’t want to pay any money down
Another concern for people is down payment.
Since you have a Very Good credit score, you can pay as little as 3% via a conventional loan, but you’ll have to pay for mortgage insurance, which dampens that deal. What if you don’t want to pay this at all?
There are two other roads you can go depending on your circumstances.
First, if you are a qualified service member, veteran, or spouse of a deceased veteran, you are eligible for a mortgage guaranteed by the Department of Veterans Affairs.
For VA loans, a down payment is optional. However, whether you make any deposit or not, you must pay a VA funding fee at closing. This money goes towards a fund to keep the loan program running. Compared to mortgage insurance, this fee is almost negligible, and there are even qualifications for eligible members that can exempt them from paying this fee.
If you compare rates among different types of loans, the VA usually also has the best interest rates in the mortgage industry, making it one of the most sought-after in the country.
Another kind of mortgage you are qualified for is the loan insured by the U.S. Department of Agriculture.
If you don’t want to make a down payment but are not qualified for a VA loan, a USDA loan is your next option if you are willing to make the compromise of buying a house located in a USDA-approved rural location.
Like the VA loan, the USDA doesn’t exactly ask for insurance, but it does charge a guarantee fee. All things said, however, this guarantee fee is a lot cheaper compared to the usual PMI charged with a conventional mortgage.
No matter how tempting it may be not to deposit your home loan, paying money down is always the best choice. Even if you get the best mortgage rates possible, the higher the loan amount and the longer the loan term you get, the more you eventually have to pay.
Think of your credit card balances. If you only keep paying the minimum required every month, this means that the interest keeps rolling over, and you eventually spend a lot more than you would have, say a month or two ago. The same goes for your mortgage. The lesser you pay at closing, the more expensive your mortgage becomes. Of course, you can do better than this, so we hope you make a wise choice.