Buying a Home: Credit Score and Mortgage Rates
There are many different factors involved in buying a home with one of the most important factors being your credit score. In order to be approved for a mortgage loan, it is necessary to have a good credit score, and the higher your score, the lower the interest rate will likely be on the home loan. In addition to credit score, first time home buyers must also consider selling price, total monthly costs, closing costs, and budget.
Credit Score and Mortgages
There are many factors that go into determining your credit score but ultimately lenders prefer to deal with people who have a history of paying bills on time, low outstanding balances, and smart credit utilization. If you are looking to buy a home, you should check your credit report at least a year in advance. This will give you enough time to clear up any errors or work to improve your score if necessary. There are three credit bureaus that provide reports and it is important to get reports from each. The three credit bureaus are Experian, Equifax, and Transunion. Lenders will generally look at all three of your credit scores and will use the middle one when determining the specifics of your loan including interest rates and how much you will be approved for.
What First Time Home Buyers Need to Know
Buying a home can be an overwhelming process and getting as much in order as possible before you get started can help. Once you have ensured that your credit score is in order, you may want to consider getting preapproved for a mortgage loan. Getting preapproved helps to show sellers you are serious about buying and can give you more power when negotiating. It can also be helpful to get all of your documents in order. You will need to provide pay stubs, tax return information, W2 forms, bank account statements, and other such information to lenders.
First time home buyers should also consider finding a trusted real estate agent. Licensed real estate agents can make the home buying process go much more smoothly. Realtors have access to information that is up to date, and will often know about new listings before buyers. Realtors can also be an invaluable tool in helping with the paperwork required to purchase a home.
When looking at home prices, it is important to keep in mind that your monthly mortgage payment will include more than the principal. Mortgage payments are generally made up of four parts including the principal, which reduce the balance of the mortgage, the interest which is put towards the cost of borrowing the money, insurance, and taxes. Taxes are often included in monthly mortgage payments where the money is placed in an escrow account and it is held until taxes become due. The payment is then made on behalf of the homeowner out of the escrow account. A mortgage payment will normally also include insurance, such as homeowners or hazard insurance. Just as with taxes, insurance costs are usually placed into an escrow account until the bill is due. There can be other monthly costs associated with your mortgage payment depending on property type, and location, and the loan amount.
Home buyers should do research and be aware of all the different loan options available to them. There are many programs available, especially for first time home buyers, that help offset some of the costs of purchasing a home. There are FHA loan programs that often allow for lower down payments. The US Department of Housing and Urban Development also has a program where they offer HUD homes, and many states have state specific programs to assist home buyers.
Buying a home can be an exciting but sometimes overwhelming experience. Doing your research and gathering everything you need will help to make the process go much smoother. To learn more about buying a home, consult the resources listed below.
- US Department of Housing and Urban Development - Buying a Home
- How Credit Scores Impact Mortgage Rates
- Consumer Information - Credit Scores
- Home Buying and Your Credit Report
- Buying Your First Home - Quick Facts
- Ten Tips for First Time Home Buyers
- Tips for First Time Home Buyers
- Understanding the Home Buying Process
- First Time Home Buyer Credit
- How Does Credit Score Affect Ability to Get a Mortgage Loan?