The Impact Your Credit Score Has on Buying a Home

There are seemingly countless things to consider and responsibilities to uphold during the home-buying process. With so many factors determining whether you get into the home of your dreams or not, your credit score may get swept under the mental rug. 

However, your credit score has a major impact on whether you get the loan you want at the rate you need. This means spending some time to fully understand your credit will pay off. 

To help you out, we’re taking a look at the connection between credit scores and home buying, how a good score means better mortgage rates in Georgia, and what steps you can take to improve your credit if it’s fallen off. 

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Credit Scores and Home Buying 

We all associate a healthy credit score with better purchasing ability. This is true for most large buys, including a house. Let’s dig a little deeper to understand the connection between your credit score and the home-buying process. 

Typically, you need a credit score of 620 or higher to finance a home. This rule isn’t set in stone, but if buying a house is in your future, you should keep it in mind. 

The higher your credit score, the better mortgage rates you’ll get. This is largely because lenders put your credit under a microscope when you apply for a loan. A strong score is a sign you have a good repayment history, which makes you less risky in the eyes of lenders. 

As a gauge, lenders get your credit scores from the three major credit agencies and use the median. The three agencies are:

  • Experian
  • Equifax 
  • TransUnion

However, if there are multiple borrowers, like a spouse or child, they may use the lower score to determine your rates. 

In addition to your credit score, lenders also look at other factors like your debt-to-income ratio, loan-to-value ratio, and income. If you’re curious about the type of interest you’ll pay, use an online mortgage calculator Georgia rates can be found on. 

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How Credit Scores Work

For many, their credit score is a mysterious financial barometer that follows them around their whole life. However, the less mystery involved, the more informed your financial decisions will be. 

Several factors affect your credit score, including: 

Payment history 

Your track record of making monthly payments on credit cards, cars, energy bills, or any type of loan directly impacts your credit. Missed or neglected payments lower it and regularly paying on time keeps it healthy. 

Total Debt Owed

Your credit score is affected by the combined amount you owe on all credit cards and loans. The more outstanding debt you have, the lower your credit score may go. This is why it’s important to avoid only paying the minimum monthly amount on a large debt. 

The Length of Your Credit History

Have you had the same credit card for years? This could be great for your credit. A long credit history shows financial maturity. However, your credit must be in good standing. 

New Credit 

Suddenly opening multiple credit card accounts or taking out loans in a short period can damage your credit score. This behavior is considered risky. Even having too many credit checks performed in a short timespan can hurt you. 

Diverse Credit 

Different forms of credit can be good for your overall score. For example, having multiple credit cards and small loans that are responsibly managed can strengthen your credit.

In addition to knowing what factors affect your credit, it’s good to have an idea of what your score says. Anything over 800 is excellent. If you’re between 750 and 800, you’re doing very well. Between 670 and 750 is okay, but if you’ve dipped below 670, it may be time to work on bringing it up. 

Improving Your Mortgage Rates

If you’re gearing up to buy a home, the rate you get has a huge impact on your financial future. You want the best rate possible, but if there are problems with your credit, you may want to do a few things before you apply for a loan. 

First, use a mortgage calculator Georgia home buyers can get rates from and see where you stand. You can then take some smart steps to improve your rate. 

See all your rate and closing cost options. Start Here! (Jun 22nd, 2024)

Pay Off High-Interest Debt

Your debt-to-income ratio is one of the factors leaders look at when determining your eligibility and rate. Getting rid of as much high-interest debt before you apply for a mortgage will make you look more attractive. 

Improve Your Credit Score 

Getting your credit as strong as possible before applying for a mortgage loan will result in better rates. Start doing the following: 

  • Pay bills on time. 
  • Make a budget and pay off balances. 
  • Avoid new credit card accounts. 
  • Make payment arrangements for delinquent accounts. 

Stay Financially Stable

Before you decide to buy a home, make sure your employment and income are sound. If you have the means to increase your income, this can help your rates. It’s also best to avoid expensive purchases. 

Make a Larger Down Payment 

The more you put down on a house, the less risk you present to lenders. This is due to your loan-to-value ratio going down as a result of the larger down payment. Access your budget and see if you can save money for a period before applying for the loan. 

Work With a Trusted Lender 

The interest rate you get with one mortgage lender may be different from another just down the street. Do some research and find a trusted local lender with experience and a good track record. 

At The Moreira Team, we offer a mortgage calculator Georgia home buyers can use as a starting point in their journey. 

Programs and Rates for First-Time Home Buyers

Purchasing your first home may feel stressful and frightening, but there are plenty of loans available that suit a wide range of situations. It’s all about finding what works for you and determining what kind of credit score you need. 

The table below provides a simple rundown of top programs and their credit requirements. 

Program Credit Requirements 
Conventional Loans: These are standard home loans and are widely available. They don’t require a hefty down payment and offer competitive interest rates. 620 or higher 
FHA Loans: These government-backed loans are great for first-time home buyers due to low down payment and credit requirements. Those with a credit score of 580 or higher only need a minimum down payment of 3.5%. 
Those with a credit score between 500 and 579 need a down payment of 10%. 
USDA Loans: Good for people with less-than-perfect credit, this program helps people buy homes in eligible rural developments.Lenders usually want a score of 640 or higher, but it’s flexible. A good credit history is an advantage.  
VA Loans: Specifically for veterans and service members, these loans can be used for different types of properties like homes, condos, or construction projects. Flexible credit requirements, but a score of 580 or higher is recommended for a 0% down payment. 

Note: this table isn’t a guarantee of specified rates. You’ll need to work with a trusted mortgage lender to help you determine what you qualify for. 

A Mortgage Calculator Georgia Homebuyers Can Trust 

If you’ve looked into your credit score and want to know what type of rate you can get, check out our mortgage calculator Georgia residents can rely on. This is a great way to get the ball rolling on your journey to homeownership. 

The Moreira Team can help you find the right loan for your situation. Our team will make the process clear and easy so you understand every element of your loan terms. 
Get a quote today.