As many of us have found out, it is essentially impossible to buy your first home up-front. This massive amount of capital is generally paid over the long-term, in the form of a mortgage. When a mortgage company calculates a potential monthly payment, it turns out not everyone is on equal footing — those with higher credit scores will typically find offers with better rates than those who FICO rated lower.
However, your credit score is not the be-all and end-all of factors influencing mortgage options; individuals with good credit but few assets may have trouble getting approved. Individuals’ debt-to-income ratio will also influence the mortgage process. Whatever your financial situation, here is how your credit score can weather the rocky sea of getting a mortgage.
What will happen, and why
It is true that your credit score has a very significant impact on whether or not you qualify for various mortgage options, and that these options are important. Differences in rates that appear minute can, over several decades, end up varying by thousands of dollars. It only follows that the best mortgage companies will look for individuals with the best credit history. Fortunately, these companies are generally more lenient with their clients’ credit scores now than in the past. In 2012, the median mortgage borrower had a credit score of 781. In 2017, that number dropped down to 754.
Don’t freak out! How to handle it
To make matters even more stressful, once you are approved for a mortgage plan, your credit score will drop, sometimes dramatically. According to myFICO Blog, 30% of your score is comprised of “amounts owed.” However, bear in mind that other factors such as payment history, which is responsible for an even larger 35% of your credit score, can help you get your score back to where it was. The length of one’s credit history further influences credit score, meaning that in the absence of serious missteps it will naturally rise over time.
Moving forward
What is the best way to help your credit score after getting a mortgage? Do the same thing that got you the mortgage in the first place: make your payments on time. If you still have questions about paying for a new home, don’t hesitate — call the experts at The Tuttle Group today.
