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FICO Score Importance - Buy a Home - Haring Realty

At Haring Realty, our REALTORS® know that some aspects of the home-buying process can be confusing.

Even buyers who have been through it all before don't know everything. And it can be even more worrisome for first-time buyers, who wonder about all the things they aren't familiar with yet. That can put a damper on the fun of looking at Mansfield or Ashland homes for sale.

One subject comes up again and again: Financing. Where to find a mortgage and how to get the best deal.

Choosing the best mortgage for you can save you thousands of dollars across the life of your mortgage. But buyers often go into the process knowing little about one of the most important factors that can influence your mortgage terms: your FICO score.

What is a FICO Score?

Every time you pay a bill or use credit, your transactions are cataloged by three credit reporting companies: TransUnion, Experian, and Equifax. They gather financial information behind the scenes used in calculating FICO scores.

The FICO score, in turn, is a three-digit number from 300-850. It estimates how much risk you represent to a prospective lender, ranking how likely you are to pay back your loans based on a weighted assessment of financial behavior. Total credit available and bills paid on time are especially vital.

In general, "good" FICO credit scores range between 670 and 739.

But the story gets a little more complicated when you look at what credit score is needed for a mortgage.

What FICO Credit Score Do You Need for a Good Mortgage?

Many mortgage programs come with their own minimum credit score requirements:

  • Conventional Fannie Mae / Freddie Mac Home Loan: 620

  • Federal Housing Administration (FHA) Loan: 580

  • Veterans Affairs (VA) Loan: 620, but can vary by lender

  • USDA Rural Housing Loan: 640

  • Jumbo Loan: 680

One thing stands out right away: You don't need perfect credit for a home loan!

That said, it's always best to improve your credit score as much as possible before you buy a home. A higher score means more favorable interest rates, leading to savings. Plus, you might be exempt from pricey mortgage insurance and hefty down payments common with low credit score applicants.

How to Raise Your Credit Score Before Buying a Home

To raise your credit score, adopt these sound financial habits:

  • Pay Bills on Time
    Of all the factors that go into a credit score, routinely paying all your bills on time is the most influential. If you have difficulty remembering some bill due dates, use a calendar or take advantage of auto-pay features.
  • Avoid Taking Out New Loans
    As you approach time to look at homes, avoid taking out new loans, such as a car note. Don't worry about large, fixed commitments like your student loans: Lenders are aware of these and look at your whole financial picture.
  • Pay Off Credit, But Don't Close It
    Your total credit availability is a large factor in your overall credit score. It's not wise to close a credit card, even once you've paid off the whole amount. Pay off high-APR accounts first to save more money over time.
  • Develop a Household Budget
    A budget will help you find ways to save more money, which you can apply toward debts. Plus, you will have a clearer idea of how much you can afford to pay on monthly mortgage premiums given your other expenses.

Contact us today to learn more about buying a home.

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