As a REALTOR, I often work with clients who are in the process of obtaining a mortgage loan. One of the most important factors that lenders consider when approving a mortgage loan is the borrower's credit score. In this blog, I will discuss credit scores for mortgage loans and what you need to know.
What is a credit score?
A credit score is a number that reflects a borrower's creditworthiness. It is calculated based on information from the borrower's credit report, including their payment history, credit utilization, length of credit history, and types of credit accounts.
Why is your credit score important for a mortgage loan?
Your credit score is an important factor that lenders consider when determining whether to approve your mortgage loan application. A higher credit score can help you qualify for a lower interest rate, which can save you thousands of dollars over the life of your loan.
What credit score do you need for a mortgage loan?
The minimum credit score needed to qualify for a mortgage loan varies depending on the type of loan you are applying for. Conventional loans typically require a credit score of at least 620, while FHA loans may allow borrowers with lower credit scores to qualify, although a higher score may be required to obtain the best interest rates.
Which credit score do mortgage lenders use?
Mortgage lenders typically use FICO scores, which are a type of credit score developed by the Fair Isaac Corporation. The reason for lenders using FICO Scores vs Vantage Scores is not by choice, rather, by mandate from the Federal Housing Financing Agency. Within the FICO scoring model, there are several different versions, each with its own scoring range and criteria for calculating scores. The most commonly used versions for mortgage lending are FICO Score 2, 4, and 5, although some lenders may use newer versions like FICO Score 8 or 9.
To check your FICO Score 2, 4, and 5 before you complete an online mortgage application go to https://www.myfico.com/ You can sign up for a one time check or a monthly review. Knowledge is power!
