It's important to keep the possibility in mind that you could be on the hook for other hidden homeownership expenses and plan well in advance. Here's how.
If you’re getting ready to start looking for your dream home, you probably have a lot of questions.
Prospective home buyers typically need to have proper knowledge of credit scores and how they impact their ability to obtain a mortgage and purchase a home.
Unfortunately, there is quite a bit of misinformation out there with regards to credit scores and the home buying process. So let’s take a look at everything you need to know about homeownership and your credit score. Once you have a better understanding of the information you’ll be able to confidently move forward with your search!
FICO Score For Mortgage
FICO is the score used by most lenders in order to determine if an applicant qualifies for a mortgage. But what exactly is a FICO score? It is a type of credit score developed by the Fair Isaac Corporation, now known as FICO. FICO is an analytics software company and its consumer credit score is the most widely used to determine loan or credit eligibility. The FICO score takes into account the following criteria:
- 35% of the score is determined by your payment history
- 30% of the score is determined by the amounts you owe
- 15% of the score is determined by the length of your credit history
- 10% of the score is determined by the types of credit you use
- 10% of the score is determined by new credit
Is My FICO Score Good Enough For a Mortgage?
Of course, “Is my FICO score strong enough to make me eligible for a mortgage?” is the number one question most prospective home buyers ask. Although every individual’s situation is unique, most lenders categorize FICO scores into the following groups:
- FICO score between 740 – 840: This is considered excellent credit that will almost certainly get you approved for a mortgage at the best interest rates.
- FICO score between 680 – 740: This is considered a good credit history. A mortgage approval at a good interest rate is likely.
- FICO score between 620 – 680: This is an acceptable level of credit that most lenders will consider, however, the mortgage you qualify for may have higher interest rates.
- FICO score between 560 – 620: At this level, your chances of getting approved for a mortgage begin to decrease. Although you may still qualify for a mortgage, expect that if you do, you will have to pay high-interest rates.
- FICO score between 300 – 500: Your chances of getting approved for a mortgage with a FICO score in this range are quite unlikely. You will need to look at ways to improve your credit score.
Will Credit Inquiries Impact My FICO Score?
Many people are reluctant to check their FICO score because it is commonly believed that checking your FICO score will negatively impact it. This is not the case. It is important to understand that there are two different types of credit inquiries. The first is called a soft credit inquiry. This means simply checking your credit score and it will not impact your overall FICO score. Hard inquiries, on the other hand, involve actively applying for credit or a mortgage and these types of inquiries will impact your overall FICO score.
This is why you should check your FICO score early on in the home buying process. It won’t negatively impact your score and it will give you more insight into the probability that you will be approved for a mortgage as well as your qualifying interest rate.
If you are wondering how to check your score we can help! Home Lending Pal is the only non-loan originating company that allows a borrower to perform soft pulls of their FICO score to simulate underwriting.
In addition to allowing prospective home buyers to perform soft pulls, Home Lending Pal’s AI-powered mortgage advisor, Kev, can do so much more.
Our no-pressure approach allows you to input all of your relevant financial information into our system. From there, our AI-powered software will analyze your profile to generate your mortgage score. Your mortgage score shows your anticipated approval odds for homes that you add to our system. Best of all, it uses real-time information so you will be alerted immediately if the potential cost to maintain a home you are interested in is too high for your current spending habits. Kev will also make spending recommendations based on your goals.
If you think Home Lending Pal can help you on your search for your dream home, check out our Frequently Asked Questions page for more information. Like what you see? Peruse more articles from our Mortgage Blog to make sure you are confident, knowledgeable, and well-equipped throughout your home buying journey!