Your FICO score (credit score) is important when it comes to obtaining mortgage financing. Most people know that it is important to have a good credit score when they apply for a home loan, but they aren't entirely sure why.
Determining whether you get a home loan
One of the main things your FICO score does is help lenders decide whether to consider you for mortgage financing. If your credit score is too low, you might not get the loan at all. After the subprime lending crash, many lenders tightened their standards and requirements. Now, mortgage loans in general are harder to come by.
A poor credit score tells lenders that you are at risk of not repaying, and they will be wary of you. Many who could have qualified for a home loan a year ago are finding that such is not the case now.
Determining your interest rate
After your mortgage lender has decided whether to give you the mortgage financing, it is time to set the terms, including interest rate. Your FICO score will help the lender decide. The lower your score, the higher your interest rate. If you want the best terms on mortgage financing, you need to improve your credit score. And after the terms are approved, be careful. Some mortgage lenders double check your credit score before closing.
Since the subprime lending crash many lenders require at least a 670 FICO score to qualify you for a loan and at least a 700 to give you the best rate. Shop around, though, since terms vary by mortgage lender.
Other posts in this series:
How to improve your credit score
Love it! Keep up the great posts, Miranda.
So ... maybe you answered this elsewhere, but how important is your credit score itself when lenders try to determine eligibility and rates? What other factors do they consider?
Posted by: Easton Ellsworth | January 10, 2008 12:03 PM | Permalink to Comment