We briefly discussed before the importance of your credit score. However, we barely scratched the surface as to the different ways your credit score affects your daily life, and how much the right credit repair services could save you. One of the ways that increasing your credit score can benefit you is when you buy a house.
How Your Credit Score Affects Buying a House
While banks and landlords will look at your references and your leasing history, your credit score is the determining factor when both banks and landlords are deciding if you qualify to buy or lease a home, as well as deciding how much to charge you.
The normal protocol for leasing almost any property includes the landlord inquiring about your credit, as they believe your credit score is a good indication of whether or not you will make your rent payments on time. When you have a low credit score, you may be denied a lease, which means your options are few and far between. If you have an especially low score, this may leave you with no options at all.
Keep in mind, landlords will look at all tenants’ credit scores. If one is less than satisfactory, chances are both (or all) will be rejected.
To receive a loan backed by the Federal Housing Administration for buying a home, your credit score has to be at least 580. However, in almost all cases, your average bank is going to require at least a 620 on your credit report for a mortgage.
In addition, your credit score will determine the type of house you can buy. Higher credit scores will give you more options.
Payments and Interest Rates
While you may meet the minimum requirements for purchasing a home, the higher your credit score, the lower your interest rate is going to be, and lower interest rates mean lower monthly payments and an overall lower cost. It also means you may be required to put less down and a good credit score generally means you won’t need a cosigner. Take the following three examples, given by U.S. News Money. Each involves a $20,000 down payment, a $1,680 per month payment, and taxes/insurance costs of $336 per month.
1 – Low Credit Score (620-639)
Interest: 5.671 percent
You could borrow: $232,299
Homes you can afford: Below $253,000
2 – Mid-Range Credit Score (660-679)
Interest: 4.695 percent
You could borrow: $259,291
Homes you can afford: Below $278,000
3 – High Credit Score (760-850)
Interest: 4.082 percent
You could borrow: $278,749
Homes you can afford: Below $299,000
This means with the same income, down payment, insurance costs, taxes, and monthly payment, you can afford much nicer homes with a higher credit score.
If you are looking at buying a home in the near future, or your credit score has prevented you from living in the area or the size home you want to be in, then contact our team at Empowerment Financial Group today. Our expertise allows us to guide you toward the credit repair you need so you can afford the house you love.