Credit scores. How important are they? Today I want to talk about one of the reasons I hear for people not wanting to buy a home, and that is a low credit score.
Many Americans are either misinformed or don’t know what that magical number of a credit score is needed to buy a home.
Well first of all, a credit score is a three-digit number ranging from 300 to 850 with 850 being the highest. The higher the value, the more financially trustworthy you are to the bank.
So imagine you have a friend who asks to borrow money and you’re gonna think about the last time you lent money to this friend. Did they pay it back in full? Did they pay it back in time, what happened? And that’s what a credit score is. The banks use that number to see how trustworthy you are.
Now a lot of Americans think that a score of 780 is needed to buy a home. I’m gonna share my desktop with you and you can see this graph. It is the Ellie Mae origination insight report and it basically focuses on recently approved loans. So if you look at the bottom there, 52.7% of pre-approved loans had credit scores ranging from 600 to 749. Yes, you heard right, 600 to 749.
So what does that mean? It means this, don’t disqualify yourself from thinking that you have to have a score of 780 or more just to buy a home. You can buy a home with a lower credit score but at the cost of a higher interest rate and added fees.
The end result is that a bad credit score will cost you more money each month and over the life of the loan, fortunately, your credit score is not set for life. From a financial standpoint, it is better to take the time to make yourself eligible for a better interest rate. That said, you may not be able to or not want to wait. In that case, know that you can always refinance if you’re willing to pay closing costs.
Now I am not a financial adviser but I have many mortgage lenders on my team who are experts at this and I am happy to connect you with any one of them. Feel free to reach out to me any time you have a question about real estate or about the home-buying process. The more you know, the more educated you are, the better off you will be.
More power and knowledge to you!