Is now the time for you to buy a Pittsburgh home?
You may have heard that the Pittsburgh real estate market is hot, and interest rates are low. These factors are helping a lot of buyers leap homeownership.
Qualifying for a mortgage depends on several factors. A lender will look at the cash you have available to invest in your new home, the amount and type of debt you currently have, and your credit score.
I’m sure you know the importance of maintaining a good credit score, but what does that mean for a home buyer? Credit scores can be confusing.
Your FICO score is a three-digit number based on your credit reports’ information that helps a lender determine how likely you will repay a loan. Simply put, it is a summary of your credit report.
The factors that determine a FICO score include:
- Payment history (35%)
- The amount owed (30%)
- Length of credit history (15%)
- Types of credit (10%)
- New credit (10%)
A good FICO score can save you thousands of dollars in interest and fees. So what is considered a good Fico score?
Less than 580 is considered poor and well below the average of U.S. consumers.
580-660 is regarded as a fair score, although still below the average of U.S. consumers.
670-739 is considered a good score at near or slightly above the average of U.S. consumers.
740 – 700 is considered very good and above the average of U.S. consumers.
800+ is deemed to be exceptional and well above the average of U.S. consumers.
Given that information, what score is considered a minimum score to be able to obtain a mortgage? That depends on the type of loan you are considering.
- A conventional mortgage requires a minimum of 620 FICO score.
- An FHA loan with a 3.5% down payment requires a 580 FICO score.
- A VA loan has no minimum score, but most lenders require at least a 620 FICO score.
There are always exceptions. So, it would be wise to speak with a lender before deciding that you do not qualify. Many lenders also offer a credit repair service that can help you improve your score in a short time.
Obtain a copy of your credit report and review your credit report carefully. Check the report for errors. There may be items that do not belong to you or that were misreported. You will need to dispute any errors which can immediately boost your credit score.
Work with someone who is experienced in credit repair, which can help you improve your credit score. Many buyers can increase their credit scores in less than a year.
It is an excellent practice to review your credit report annually to ensure that it is accurate. Your credit score is used for many credit types you may want to apply for, not just a home mortgage.
A word of caution – after you have applied for a mortgage, do not open any new credit. Many times a buyer will purchase a large ticket item before closing on their home. Your lender will do a last-minute credit check. Wait until you have closed on your new home to purchase things like a new car, furniture for your home, or a major home improvement.
We work with some good local lenders who help our clients obtain the right mortgage for their needs. We would be happy to refer you to one of them. Contact us at 412-303-3600 or SAYHAYTeam@gmail.com.