There are various factors which lenders look into before they can approve an applicant for a mortgage loan. The credit score is the major one. In the past, even individuals with less than perfect score could qualify, but today the requirements are stricter because of the financial crisis from 2009. Find out what score you need in order to get approved now.
Qualifying for a Conventional Loan
You will need a credit score of around 680 or higher in order to quality for mortgages available from commercial lenders like banks, credit unions and other companies. This score can help you get a fairly affordable interest rate. You will also have to make a down payment of just 5% or lower. This is another great money-saving benefit. That is why it is best to work towards achieving it before you decide to apply for a home loan.
In some cases, lenders will accept the applications of borrowers with score of 640. This is usually the case when the borrower has no blemishes in their record, but the number is due to fewer loans used by the person in the past. You can expect the interest to be higher in this case as well. Additionally, in order to qualify in this case, the lender may require you to place a larger down payment.
Qualifying for an FHA Loan
If your score is lower than 680, you should do some research to find out whether you will be able to quality for a mortgage product from a conventional lender. It certainly pays off to consider all available options in order to identify the best one. Still, you have to know that you have the best chances of qualifying for an FHA loan.
At present, in order to quality for such a home loan, you will need a score of at least 620. You will need to make a down payment of just 3.5%. However, you have to be prepared for stricter requirements overall. You may also qualify for a smaller principal amount.
Is it possible to qualify for an FHA loan with score lower than 620? Let’s say that it is not impossible. The statistics show that less than 10% of all borrowers managed to quality with a score lower than this one. If you are in this situation, you should discuss it with a financial advisor or directly with a lender.
Getting Lower Interest
Individuals with score of 740 or higher can get some of the best interest rates on mortgage loans. Generally, the higher the number is the cheaper the loan will be. You have to check how much you will be able to save exactly with the score that you have. This will help you identify the cheapest loan or the one which offers best value for money. It all depends on your strategy.
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