How to Get a Mortgage with Good Credit
The adage that “good credit opens doors,” is maybe most evident when you begin a mortgage application process. Virtually every aspect of the qualification application and approval process is less stressful – not to mention the better rates and terms you’ll have available.
What Qualifies as a “Good” Credit Score
In most contexts, “good” is subjective. Food or movies you think are “good” might be “bad” to someone else. Credit scores are different. “Good” falls within a specific credit score range.
Most credit agencies use the 300 to 850 scale. For Equifax and Experion, 670 to 739 is categorized as good, while 740 to 799 is very good and 800 to 850 is excellent. TransUnion is slightly different, with good being between 721 and 780 and excellent being any score between 781 and 850.
The Effects of a Good Credit Score on Your Mortgage
The mortgage benefits of a good credit score can be broadly broken down into two categories: the benefits for the loan itself and the process benefits.
From the process perspective, a good credit score gives you:
Broader Selection of Loan Products: With a good credit score, you'll have access to a wider variety of mortgage products. From conventional loans to adjustable-rate mortgages, the world is your oyster. You can choose a loan that's tailored to your financial needs and homeownership goals.
Quicker Approval Process: Good credit doesn't just influence the terms of your mortgage; it can also speed up the approval process. Lenders may require fewer documents or checks if your credit history radiates reliability.
Negotiating Power: With a robust credit score in your arsenal, you're in a position to negotiate terms with lenders. Whether it's waiving certain fees, lowering interest rates or adjusting loan terms, good credit provides a bargaining chip.
From the loan perspective, a good credit score entitles you to:
Better Interest Rates: Lenders reserve their best interest rates for borrowers with strong credit scores. A higher score indicates a lower risk for the lender, and they reward this reliability with more attractive rates. Even a slight reduction in interest rates can translate to tens of thousands of dollars saved over the life of a mortgage.
Higher Borrowing Limits: Your credit score is instrumental in determining how much a lender is willing to offer. A commendable score can mean getting approved for a higher mortgage amount, enabling you to afford a larger or better-situated home.
Lower Down Payments: Some lending programs might offer reduced down payment requirements for borrowers with high credit scores. This can be particularly beneficial for those looking to minimize upfront costs.
Beyond Mortgages: The Power of Good Credit in Other Loans
The benefits of good credit aren't restricted to just mortgages.
A strong credit score can garner you better interest rates, higher loan amounts and more flexible repayment terms on personal loans. For loans secured against an asset, like auto loans or home equity lines of credit, a good credit score can be especially advantageous. While the asset reduces the lender's risk, a good credit score can further diminish it, leading to even more favorable loan terms.
Believe it or not, your credit score can also influence your insurance premiums. Many insurers use credit-based insurance scores to determine premiums. A higher score could mean lower monthly payments on your insurance products.
Building and Maintaining Good Credit
People don’t enter adulthood with a clean slate and good credit. Good credit must be built over years of responsibly using financing of various types. This means using a credit card, getting an auto loan or utilizing other loan products and making on-time payments in full. If you do this long enough, you will eventually have a good credit score.
You should also avoid some of the common borrowing missteps. Try to limit your number of open lines of credit (like only having one or two credit cards) and don’t use more than 30 percent of your available balances. Also avoid opening multiple credit accounts in quick succession.
People interested in purchasing a home in the near future should also be proactive about credit score monitoring. Be sure to make use of available free credit reports and take steps to correct inaccuracies that may negatively affect your credit score.
Are You Looking for Great Rates on Mortgages in New Orleans?
Members of OnPath Federal Credit Union have access to exceptional rates and terms on competitive mortgage products. If you’re interested in buying a home or want to learn more about your options, don’t hesitate to call us at 800.749.6193.