What Credit Score Do I Need for a Mortgage?

July 11th, 2011 | Author:

Since the credit crunch of the mid to late 2000s, credit and lending companies have become stricter in doling out loans. This is due in part to the decline of the American economy brought about by careless loan approvals and irresponsible loan borrowers. What was once seen as an acceptable credit score for a mortgage three years ago is now considered subprime. Similarly, credit scores that used to get affordable interest rates before now have interest rates that would have been regarded as unreasonable.

Like all other loans, lenders will always use a client’s credit score to determine whether he could be allowed to be given a loan. This credit score reflects the borrower’s capability to pay. Therefore, it also indicative of the risk level the borrower poses to the lender.

Lending companies normally have an average accepted credit score for a mortgage as with other types of loans. Furthermore, if a client is accepted for the loan, his credit score will also determine how much interest he has to pay while the loan is still active.

Four years ago, a 650 credit score for a mortgage would have given the borrower prime rates. These prime mortgage loans would give the borrower the best interest rates which were lower than the average interest rate of the market that time.

However, the present state of the economy has changed all that. Since the start of the economic recession, the minimum credit score needed to get a mortgage has risen from below 500 to 650. What was considered a prime credit score has now become subprime instead.

Currently, any score below 600 will still qualify a borrower for a mortgage loan. However, this will probably translate to interest rates that are well above average and more expensive than usual. A 650 and above credit score for a mortgage is now considered acceptable and will give the average interest rates. The best mortgage rates at present are given to borrowers that have a credit score of at least 730, which used to be just 650 a couple of years ago.

It is important to note that even though a loan for a bad credit score can still be approved, the lender will not come in the form of traditional sources such as banks and established lending companies. Instead, borrowers with bad credit are left to borrow from non traditional sources such as small lending companies that charge extravagant fees and monthly interest rates. Because these small companies do not need a high credit score needed for a mortgage loan, they usually give interest rates that are almost the maximum for their states.

Getting a mortgage loan can damage an already bad credit score when the lender evaluates it from any of the three credit bureaus. This is why it is important to know one’s credit score as well as the accepted credit score for a mortgage loan before even applying for one.

Newest Answers

Credit Card Advice for New Graduates

June 26th, 2017 | Author:

[I]f you’ve recently graduated or plan to this summer, you may be planning to enter the world of being an adult. You’ll get a job, maybe an apartment and car, and probably open a bank account if you don’t already have one. You may also decide to get a credit card with your new income. […]

Continue Reading »

3 Reasons to Start Out a Marriage with Good Credit

June 23rd, 2017 | Author:

[W]ith summer comes plans for weddings, big beautiful bouquets, a gorgeous wedding dress, garden ceremony and many other unique plans. Of course, each of these items cost money, which can add up to thousands of dollars. What many couples fail to plan for as they dream of their wedding is how to start out marriage […]

Continue Reading »

Why the Employed Struggle to Survive

June 21st, 2017 | Author:

[E]ven those with full-time jobs often end up struggling to pay their bills and protect their credit rating. They live paycheck to paycheck with barely enough left over to last until the next payday. With reports of the economy improving and a low unemployment rate, this may not make sense. One theory is that shifting […]

Continue Reading »

How to Save Money on Vacation This Summer

June 19th, 2017 | Author:

[P]eople look forward to summertime partially because they have a vacation planned. It’s a chance to get away and take a break from the stresses of life. Unfortunately for those who live on a tight budget, coming back from vacation may be a dose of reality they would just as soon forget. You can imagine […]

Continue Reading »

Financial Steps to Take Before You Graduate

June 16th, 2017 | Author:

[I]f you’re about to graduate college and enter the workforce, you want to start out on the right foot. It’s all too easy to get caught up in the idea of a steady paycheck and make some bad financial decisions. Here are a few things you should do about your finances before you graduate. Think […]

Continue Reading »

How to Sell Stuff to Make Money

June 15th, 2017 | Author:

[Y]ou have a bill to pay and you don’t have the money. Or your car broke down and you don’t have the extra funds to pay for the repair. One way to come up with cash when you need it is to sell something you own. However, it’s not always as easy as it sounds. […]

Continue Reading »

Have You Become a Financial Adult?

June 9th, 2017 | Author:

[A]s a teenager and even college student, you probably had your parents looking out for you. They helped with expenses even if you had a part-time job. Now that you have entered adulthood with a full-time job, you feel like a grownup. But have you grown up financially? You Know How to Budget A person […]

Continue Reading »