Have any of you ever pondered about what a good credit score for buying a house is? In these days a lot of people are getting into the housing market to gain benefits from the really low mortgage rates as some of them have fallen down to even less than 3%. But before anyone takes the decision of buying a house for themselves, apart from knowing that they are financially ready they also need to make sure that their credit score for buying a house is good. This is a special check if you are interested in low interest rates in the housing market.
Many people think it won’t make a difference if they get an increase of 1 or 2% on their interest rate, but in real it actually does. Let us go through a simple comparison to make us understand how it works.
Consumers who get $200,000 over 30 years at a 5 percent rate pay more than $186,000 in premium to the bank over the life of the advance. Contrast this with buyers who obtain the same measure over that same time period however at a 3 percent rate pay simply over $103,000 in investment – that is more than 40 percent less.
Monthly mortgage payments lowers direct proportionally with lower interest rate which vacates cash for homeowners every month.
The above mentioned details are some of the few reasons why homebuyers should know their credit score and hence restore it before requesting for home loans.
Following are some points Home buyers should know about credit scores, so they know what a good credit score for buying a house is.
What is a Good Credit Score?
The range of Credit Score is from 300 (poor) -850 (Excellent). Following are the 5 factors by which credit score is calculated.
- Past Payment History- 35% is determined; more bills payed on time by consumer have better score.
- Amounts Owned- 30% is determined; consumers used up large % of available credit have lower scores.
- Length of time a consumer has had credit- 15% is determined; a longer credit history tends to be better.
- New Credit- 10%; Consumer that open up their new credit at once may hurt their scores
- Type of credit- 10%; a variety of different type of credit like installments loan, credit cards and retail accounts, boost credit scores.
The higher a consumer’s credit score is the lower the interest rate will be for that person. There are some other factors when calculating interest rate like down payments etc.
There are many different types of credit scores and the credit score that is directed towards the mortgage loan is most likely to be used by a lender.
What kind of credit score do you need to buy a house?
A consumer of credit score 720 or more will have the best rates so in these days the consumer needs 720 or equivalent. A score of 620 is the least you a lender need to give you a house loan. People having their credit score in 600’s must pay a higher interest rate by a percent or two as compared to those with higher interest rate.
Best score is the one having more than 740 credit score. There are some government agencies that don’t need high credit scores as they just take ore interest rates and allow them houses. Like Fannie Mae requires 620 and the Federal Housing Authority offers loans at minimum credit score 580 and low interest rate and down payment.
How Can the Consumers Increase Their Credit Scores?
Assuming that a customer finds that everything is right on his or her credit report, however the score is still not exactly stellar, there are steps to take to support the score
Here are some tips on how consumers can increase their Credit Score:
- Credit Scores can be improved if the consumer pays the bills on time as the credit score is calculated by history of payment of bills as well.
- credit scores can be improved by paying the credit card debt bills
- A consumer should not take out many new credit lines at once.
I surely hope this post has served to answer the inquiry “What is a good credit score for buying a house?” But don’t attempt to purchase a house simply in light of low interest rates or whatever possible business patterns. Particularly assuming that you are attempting to pay off debt and need some time to spare up cash, then it may not make sense for you to purchase a home. For those that would like to, please proceed carefully and cautiously and keep this data about how Credit Score influence the house-purchasing process in the forefront of your mind as it may help you go further and ease some of your questions.