Credit Score Needed for Buying a Home in 2008
By Brandon Cornett
Credit reports and scores are a popular topic among home buyers these days. In truth, this has always been an important topic for people buying a home, but it’s even more important today.
After the subprime lending crisis that came to a head in 2007, the federal government began to tighten down on mortgage lenders. In response to the alarming number of mortgage foreclosures, the government stepped up regulation of lenders. And as a result, those mortgage lenders will pay closer attention to a borrower’s credit score today than they did a few years ago.
So what kind of score does a home buyer need in the current economy? As in the past, this depends on the individual mortgage company involved and their particular lending practices. But one thing is for certain — a better credit score will certainly make your home buying process easier. It will help you qualify for a loan quickly, and it will also help you secure the best interest rate on that loan.
Let’s Get Specific – The Average Score in the U.S.
Ask ten different financial experts what the average credit score in the U.S. is, and you will probably get ten slightly different answers. With that said, most will agree that the average score falls between 650 and 700. Keep in mind that higher is better.
Additionally, a score of 720 or higher is ideal for the home buying purposes. You will have no trouble qualifying for a mortgage loan with a score over 720, and you’ll also quality for the best interest rates and terms. This is key, because it translates into a smaller mortgage payment each month. And who doesn’t want that?
Improving Your Credit Before Buying a Home
Now let’s assume that you have requested copies of your credit scores from a website like MyFICO, and it you’ve found that it is lower than average (and certainly lower than the ideal range of 720 or above). How do you go about increasing your score before buying a home?
Here are some things you can do:
- Most importantly, make sure that you pay all of your bills on time (credit card bills, car payment, etc.). This will improve your score faster than any other single act.
- It’s also wise to pay down your debt as much as possible, starting with those credit card balances. This will give you a more favorable debt-to-income ration.
- Lastly, be sure to avoid any new lines of credit or loans. You don’t want any new forms off debt dragging you down when trying to buy a home.
So let’s summarize what we have learned…
What credit score do you need in order to buy a home? That will depend on the lender. But most experts agree that a 720 or above is needed to get the best interest rate on your mortgage loan. You might get approved for a loan with a lower score than that, but you certainly won’t get the best interest rate.
So the key is to (A) know what your score is in the first place, and (B) work hard to improve it before applying for a mortgage if it’s low. These have always been important things for home buyers to do, but they are even more important today as a result of the tougher regulation of the lending industry.
Brandon Cornett publishes a weekly blog column under the alias “Captain Credit.” To learn more about home buying credit scores and similar topics (from a home buying angle), please visit the Captain at http://www.homebuyinginstitute.com/credit.phpArticle Source: http://EzineArticles.com/?expert=Brandon_Cornett