One of the most commonly asked questions in the mortgage business is how a borrower's credit score will affect their home loan. Your credit score or your FICO score is a key factor in qualifying you for a mortgage.
The mortgage industry divides up credit into 20 point increments. In the mortgage business this is called “loan level pricing.” Each time you go up a level, you are offered better rate.
680 and above is considered good credit. 700 and up is better. 720 and above is considered excellent. A credit score of 760 and above will get you the best rate available from a lender.
The minimum credit score a borrower needs to qualify for a government insured loan is 580.
Mortgage Brokers and companies with access to a diverse list of products can serve clients with scores under 580. More traditional lenders will not offer mortgages to borrowers with credit scores under the 580 threshold.
So how can you check your credit score, and which FICO score will mortgage providers use?
When evaluating a borrower's, lenders use the borrower's median credit score. Median means the middle of the three scores. There are three credit reporting agencies in the United States. Equifax, Transunion, and Experian. Mortgage lenders will use the middle score of these three to qualify you for a home loan.
There are many free services that will allow you to check your credit score. Many banks and financial companies offer credit scores. The government recommendation is to use the following free website to check your credit score:
This is a government site authorized by federal law, and is completely safe and free. Any US consumer can get a free copy of their credit report once a year from this resource.
It is also important to understand the difference between getting pre-qualified and pre-approved. When you get pre-qualified, the mortgage provider will not pull your credit. A pre-qualification will provide the borrower with an estimate of what they will qualify for if they applied for a mortgage that day. When you are ready to make solid offers on a property and get pre-approved, your credit will be pulled. Relevant to note: A home buyer must be pre-approved before making an offer on a home.
This is important because borrowers have a 14 to 45 day window in which their credit will not be effected by credit pulls from multiple lenders, while they shop for a mortgage.
As a borrower, it is important to understand that you should shop as many lenders as you like within that 14 to 45 day window during your mortgage search. This will ensure that you minimize the negative impact to your credit score.
If you found this blog article valuable, you should also read Brian Cooke's blog article on Steps to A Smooth Loan Process: FICO and Credit.
If you have more questions about how your credit score relates to the home loan process, please call 844-648-5512 or email us at firstname.lastname@example.org