How Your Credit Impacts Buying a House

Buying a home can be one of the most fulfilling journeys for anyone, whether you’re doing so as an individual or with your family. It’s a major moment in your life to pick out the house you’re going to spend most of your time over the next several years. However, the journey can also be a challenging one with plenty of roadblocks in the way of your future home. We aren’t financial advisors, but we constantly work with clients to help fulfill their real estate dreams and understand the role a credit score plays in the process.

Your credit score fluctuates over time, and it can be easy to ignore the number when you’re not in the middle of major financial decisions. However, it’s best to always keep track of your score and make sure you’re taking steps to keep it going up. This is because the financial decisions you make over time will impact your credit score which will play a major role in financing your future home.

A low credit score can be a major hindrance to securing financing for the home of your choice. Mortgage lenders and banks will see a low score as an indication you might not be the most trustworthy person to lend money to. This means they may avoid you entirely, or force you into unenviable terms on a mortgage.

Low credit scores could mean you will pay more upfront, or face steeper interest rates. It might seem counterintuitive that financial institutions would look at a lower credit score as a sign an individual should be responsible to pay MORE over time, but it’s how the current system works. Some lenders and loan types will require a minimum score of anywhere from 500 to 620, but you shouldn’t give up just because you have a low score. There are some institutions that don’t require a minimum credit score and instead work with you to find terms that will allow you to get the keys to your new home.

If you have a high credit score, you’re in a much better position to work with lenders to get enviable terms on your mortgage. Your higher score indicates you’re a more reliable borrower. This could mean you pay less upfront and have lower interest rates on your deal.

When you present a high credit score to a lender, you don’t have to concern yourself with minimum qualifications. That’s why it’s important to consider the options to keep your score high, such as:

  • Paying off long-term debt
  • Keeping accounts open for long periods of time, even when paid off
  • Keeping your credit usage low
  • Avoiding making credit commitments such as buying a car during the homebuying process

The last point, in particular, is very important. Even if you have fantastic credit, lenders may be scared away if they see you recently signed a car lease which will severely impact the amount of credit you’re using at once. Similarly, your credit will likely take a hit when you sign a car lease or a mortgage. This dip can be recovered by making payments on time and making sure to take care of your debts in a timely manner.

At Schlegel Livingston, LLC, we want to help you through life’s most important moments. This means having a better understanding of your own finances and approaching the real estate buying process realistically based on the resources available to you. If you are ready to take that next step in the real estate market, contact us and let’s make sure you’re on the right track.

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Schlegel Livingston LLC

Schlegel Livingston, LLC is an established real estate and probate/estate planning law firm in Fort Lauderdale, Florida. We pride ourselves on being a very hands-on law office who will help our clients by any means necessary.

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