Your credit score and your ability to get a mortgage are intertwined, though having a poor credit rating will not necessarily preclude the purchase of a home. However, it is more difficult at this time to get a mortgage if there are too many negatives concerning your credit.
Lenders use something called a FICO (Fair Isaac Corporation) score developed by the individuals the score is named after. The final decision on whether a mortgage is granted is the decision of the lender but they will look closely at the FICO score. A score of 500 out of a possible 850 is considered low, though a mortgage might be obtained. The borrower will have to provide additional financial information such as W-2 forms, bank documents and the interest rate charged will be higher than that of someone with exemplary credit. The borrower will be in a category called “sub-prime.” If you feel there is an error concerning the FICO score, consult the 3 rating agencies. It is not abnormal for the 3 credit agencies to have entirely different ratings for an individual.
Lenders tailor the FICO score to their specific standards. A score above 620 is considered good. Above 720 is considered excellent. If the FICO score is low and cash is available, it would help the case by putting down more than 20% of the price of the home. This signifies that you have “skin in the game,” meaning there is a vested interest in maintaining regular mortgage payments. If not, this money can be forfeited.
Before purchasing a home it is up to the buyer to have corrected any misinformation the credit rating agencies have and to have made efforts to improve the credit rating. This should have been done by paying bills promptly and early. Paying more than the minimum due on credit cards is a must.
Find out where you sit and get a mortgage quote from Providence Home Lending today.
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- Don’t Let Bad Credit Keep You from Getting Into a Great Home
- Getting A Bad Credit Mortgage
