What Credit Score is Needed to Buy a House in Arizona?
If you are in the market to buy a home with mortgage, knowing what kind of shape your credit score is an essential step that is vital to think about early on. Your credit score can give you an idea of whether you will qualify for a loan and what kind of interest rate you will pay. So, The first thing you need to do is check your credit score.
Your FICO score
Your FICO score is the first thing a mortgage lender will check when seeing if you qualify for a loan. While there are many factors involved in qualifying for a loan such as your income, debt and savings, your credit score is the most important. That’s why it is so important to check your credit report so you can gauge the overall state of your financial health.
What credit score is needed to buy a house?
If you are wondering what credit score is needed to buy a house, the answer is, it depends. The minimum credit score needed to buy a house is determined by the lender. Different lenders have different levels of risk tolerance and criteria, along with different cutoff points for the minimum credit score they are willing to accept. There are also many different types of mortgage loans, and each one comes with its own credit requirements.
Typical minimum FICO scores by mortgage type:
- FHA Loan – 580+ (500-579 is possible but unlikely)
- VA Loan – 620+ (some lenders require 580)
- USDA Loan – 640+
- Conventional Loan – 620+
Your credit score affects your interest rate
Did you know that your credit score affects your interest rate? Generally, the lower your credit score, the higher the interest rate will be. This means that if you have a lower score, you will end up paying more than somebody with a good credit score.
Just a half point difference can have a huge impact on your mortgage and mortgage payment. For example, the difference between a 3.5 percent rate and a 4 percent rate on a $200,000 mortgage is $56.74 per month. That’s a difference of $20,426.40 over the life of a 30-year loan.
Your credit score is not the only factor
A strong credit score is vital when buying a home, but it’s only one piece of the puzzle as lenders consider you for a mortgage approval. Beyond the information from your credit report, lenders will want to know a bit more about your financial situation. This may include such as:
- Your income level compared to your monthly debt payments (also known as your debt-to-income ratio)
- How much money you have in savings
- Where you are getting the funds for your down payment
- Your employment history
- The value and condition of the home you’re buying (from appraisal)
How to Improve Your Credit Score?
It is possible to improve your credit score with hard work and time. The things you do to increase your score will improve your overall financial profile and make it all the more likely you will be approved for a mortgage with the best terms possible.
If you’re gearing up to buy a house, here are a few specific things to keep in mind:
- Know your credit score and review your credit reports for accuracy. Pay close attention to open accounts, balances, and your addresses on file. Lenders may ask you to explain certain items from your credit report, so it’s best to start with an accurate report! Read: How to Get Items Removed From Your Credit Report
- Make all of your payments on time. Always. Your payment history is the biggest factor in your credit score, so it’s essential that you demonstrate to potential lenders that you can repay your debts responsibly.
- Pay down your existing debts. A high debt load, or a high debt-to-income ratio, can signal to lenders that you won’t be able to afford your new mortgage payment. Bringing down your debt level as much as possible before applying for a mortgage may improve your approval odds. One thing to note: think twice before consolidating credit card debt or closing old accounts. These activities could negatively impact your credit utilization ratio, which can drag down your credit score.
- Avoid large purchases. Any big change in your asset levels, savings, or debt-to-income ratio can impact your loan eligibility. No new car, new appliances and new furniture until you close your house.
Conclusion
Buying a new home is an exciting milestone that can turn challenging or stressful if you’re not prepared. Knowing that you’re well-positioned to secure the best rates and savings will make the process easier and it starts with getting your finances and credit in check early on. Take the steps to evaluate your score and understand any ways to improve your credit health before you take the leap into home ownership.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ area, we hope you will consider us. Contact us today for complimentary consultation.
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