Will you be able to buy a house in Lake Forest Park given your current credit score?
Although the fortunate cash buyer or trust fund baby is around in the Seattle area to buy homes here and there, if you’re like most of us (that is, not independently wealthy), you will want to qualify to get a home loan (or mortgage) in order to buy a house in Lake Forest Park, WA.
Qualifying for that mortgage depends on several factors: Your income, your debt profile, your cash available for a down payment and your credit score.
As you probably know – If your credit score is too low, you will pay a higher interest rate to get a loan, and you may NOT be able to qualify for a mortgage at all! In short, the higher your score, the better off you’ll be.
So let’s see how your credit score affects your ability to buy a house in Lake Forest Park, WA.
Credit Score Needs For Home Buyers: Overview
I work with lots of great mortgage lenders every day, and for the most part, they are always willing to talk to clients for 15 minutes or so to get an idea of their lending options.
But sooner or later, if you’re serious about buying a home, you need to let that lender run your credit, so they can tell you whether you’re eligible for the best mortgage rates.
The credit score tells banks about the level of risk represented by a loan to the borrower – that is, the borrower’s ability to repay the loan, and the likelihood of repaying the loan – based on past behavior.
Lenders use your credit score to determine the loan amount and interest rate to offer when you apply for a loan to buy a house.
Here are the key points to keep in mind about this . . .
- Mortgage lenders use your credit score to determine your suitability as a borrower for a mortgage loan, using your score as an indicator of how likely you are to repay the loan.
- If you have a higher credit score, you can earn lower interest rates and thus pay less over the life of the loan. With a lower score, you’ll get higher interest rates and wind up paying more over the life of the loan.
- Lenders also look at your debt-to-income ratio. This is related to your credit score and is a ratio that involves the percentage of your monthly income that goes toward debt payments.
- If you intend to buy a house in Lake Forest Park, you need to know your credit score and debt-to-income ratio before applying for a mortgage.
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How Credit Score Affects Your Ability to Buy a House in LFP.
There are three important ways your credit score can affect your ability to buy an LFP home . . .
- APPROVAL: Your credit score profoundly impacts your odds of being approved for a mortgage. If you have a low score and poor credit history, your lender may not offer you a mortgage loan.
- INTEREST RATE: Your credit score also affects the mortgage interest you can get, which affects the amount of the monthly mortgage payment and how much you wind up paying over the life of the loan. Generally, a higher score will get you a lower interest rate, and a lower score means a higher rate.
- MORE PROGRAMS: A higher credit score also puts you in a position to be able to take advantage of more lender options.
Credit Scores Needed for Loan Types
Credit scores can range from 300 to 850 and are used by lenders to assess your creditworthiness for various types of loans to buy a house. Different types of loans carry different minimum credit score requirements, such as . . .
Because conventional loans don’t have any government backing, they usually require a higher credit score than other types of loans. These loans are considered the “best” type of loans if you can qualify, because they tend to have lower interest rates.
Down payment requirements can be as little as 3% down.
Conventional loans typically require a minimum credit score of 620 or higher. These loans are best for borrowers with higher scores and some money saved up for a down payment.
FHA loans are insured by the Federal Housing Administration and so require a minimum credit score of around 580. Still, a higher score may help you qualify for a better FHA loan interest rate. And even if your credit qualifies, you still have to have enough income to be able to make the payments. FHA loans can be used with as little as 3% down and sometimes less when combined with the Washington State First Time Home Buyer’s Grant. My lenders can tell you more about this.
If you or your spouse has served in the Armed Forces you may be able to qualify for a veteran’s loan or “VA Loan.” Even if your spouse is deceased, survivor’s benefits may still apply to you.
VA loans are also government-backed and a very good option for veterans and qualified service members. For these loans, there is no set credit score minimum to buy a house, though it is sometimes in the upper 500s. These loans can be acquired with 0% down as well, which is a huge benefit.
Professional Assistance to Buy a House
As you can see, your credit score does affect your ability to buy a house, but it’s not the only factor you need to keep in mind to determine whether you qualify for a home loan.
You do have options, but it’s often difficult to sort through all the numbers and requirements.
An experienced Lake Forest Park real estate agent can help you make sense of it all, and determine the best course for you. So when you’re ready to buy a house in Lake Forest Park, be sure to contact us at (206) 578-3438.