When buying a home for the first time, it’s easy to get caught up in the possibilities. As you evaluate potential homes, explore strategies for getting sellers to accept your offer, and narrow down your financing options – don’t neglect an assessment of your credit score! A good credit score is a critical factor in getting the right mortgage to enable your dream home. Here’s what you need to know:
How Your Credit Score is Calculated
There are multiple types of credit scores. Since each reporting bureau (Experian, Equifax, and TransUnion) operates independently, your score will be different at each. Fundamentally, however, your credit score is calculated based on five factors:
- Payment history: 35 percent weight
- How much you owe: 30 percent weight
- Length of your credit history: 15 percent weight
- Types of accounts: 10 percent weight
- Recent credit activity: 10 percent weight
The best way to get a good credit score is to focus on maintaining a good payment history with no late payments, avoid closing accounts, and keep revolving debt at less that 30 percent of your total credit limit. For greater detail on how your credit score is calculated and how to improve it, read our blog on the topic.
Your Credit Score Impacts Loan Selection
Different loan programs have different credit requirements. Conventional loans, which typically offer the best interest rates, may require higher scores. By contrast, FHA loans have less stringent credit qualifying requirements. Explore this relationship by trying out Apex’s Find Your Financing tool, and contact us for more information.
How Your Credit Score Impacts Your Mortgage
Credit impacts your mortgage beyond just your interest rate. Yes, a lower score will mean a higher interest rate – but your credit also plays a role in other factors. If you are not using a down payment of 20 percent and plan to pay private mortgage insurance, for example, your credit will influence the price you pay for those premiums.
Want to learn more?
Your credit is crucial for getting a great rate on your mortgage, and improving it is possible. To devise a plan for repairing your credit, contact us. For a comprehensive overview of your credit score, download our Guide to Understanding Your Credit.
Topics: Credit Score, First Time Homebuyer, where to start buying first home, buying first home, how to buy first home, first time home buying instructions, first time buyer programs, home loans and credit scores
