When applying for credit, one of the first things you need to know is your credit score.
But why?
Your credit score will greatly impact, not only your ability to get a loan, but how much interest you will pay if you do. The higher your credit score, the lower your interest rate and, therefore, the lower your monthly payment and ultimate price of the house over time.
What credit score gives you the best chance of getting a loan?
According to my mortgage lender, the minimum score on most programs is 640. VA is 620, conventional is 620 but requires at least 20% down. Obviously the lower your score, the harder it is to get approved.
Interest rate parameters for government loans is generally the same – as long as you meet minimum requirements and can get approved, the terms are very close to each other.
Conventional loans are priced out with a Risk-based pricing policy. 740 and above will get the ‘best’ terms available. With 720-739, there is a small adjustment in rate or fee structure., 700-719, 680-699, 660-679… etc, get more expensive as the score goes lower. For example the difference with a 700 score vs. a 740 score assuming a 20% down payment is either .125% in rate or .75% in fees associated with the loan amount.
There are a lot more things that go into calculating the interest rate, but from a credit perspective, this is a general overview.
May 3rd, 2013 / 5:21 pm
Thanks, Armando, for your comment.
May 3rd, 2013 / 3:17 pm
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.
Be well.