A resounding yes! Buying a home is arguably one of the most significant financial decisions you will make in your lifetime, but before you commit or even think of buying what you now believe is your dream house, you may want to take a closer look at your credit score. Lenders typically assign interest rates based on what bracket your score falls into, and today, even insurance firms, landlords, as well as employers, are using credit scores as a proxy for grading whether you are a credit-worthy individual.
FICO ranges credit scores from 300 to 850, anything over 740 is considered excellent and will qualify you for the best rates including getting a home loan. Before the housing market crash of 2007-2008, lenders were not as heavily regulated as they are today, consequently, it was much easier for people with a tarnished or limited credit history to get subprime loans. Due to the strict regulations in the mortgage industry, it is much more difficult for individuals with poor credit scores to qualify for a loan let alone sniff one out.
You need to start seeing your credit report more than just a simple track record of your payment history because a credit score is more akin to a school GPA grading, therefore, a cumulative number that measures your success relative to others. So, when you are looking to buy a home, the most important factors that determine your overall score are:
- Through a payment, history record to show whether you been paying your bills on
- Through your utilization ratio to determine if you are close to maxing out your
credit and more likely default on paying your debts
- The third factor is the length of account history, which is the average age of your
accounts and how long it’s been since you made use of them
- Another factor that may hurt your credit score is if you have opened a bunch of
accounts at once or if you have different types of debts such as mortgage, car, or
student loan, etc
As of 2019, first-time homebuyers can now borrow up to 96.5% of the value of a home with
Federal Housing Administration (FHA) loan and only make a 3.5% down payment. Simply
put; your lender will evaluate your work history for the past two years, your payment
history records, such as utility and rent payments. Even if you have gone through
bankruptcy or foreclosure, you can still qualify for an FHA loan provided you have a credit
score in the 580+ range or prove that you have improved your score with the help of a
credit restoration reporting agency.
Note that any derogatory accounts that appear on your credit report will hurt your credit
score significantly, so to be rewarded with the best financing rates, insurance rates, and
peace of mind, credit restoration is something you MUST consider doing if your credit score
is below par.