- Many buyers are purchasing homes with down payments as little as 3%.
- You may already qualify for a loan, even if you don’t have perfect credit.
- Your local professionals are here to help you determine how much you can afford, so take advantage of the opportunity to learn more.
It’s common knowledge that your FICO® score plays an important role in the homebuying process. However, many buyers have misconceptions regarding what exactly is required to get the loans they need.
While a recent announcement from CNBC shares that the average national FICO® score has reached an all-time high of 706, the good news for potential buyers is that you don’t need a score that high to qualify for a mortgage. Let’s unpack the credit score myth so you can to become a homeowner sooner than you may think.
With today’s low interest rates, many believe now is a great time to buy – and rightfully so! Fannie Mae recently noted that 58% of Americans surveyed say it is a good time to buy. Similarly, the Q3 2019 HOME Survey by the National Association of Realtors said 63% of people believe now is a good time to buy a home. Unfortunately, fear and misinformation often hold qualified and motivated buyers back from taking the leap into homeownership.
According to the same CNBC article,
“For the first time, the average national credit score has reached 706, according to FICO®, the developer of one of the most commonly used scores by lenders.”
This is great news, as it means Americans are improving their credit scores and building toward a stronger financial future, especially after the market tumbled during the previous decade. With today’s strong economy and increasing wages, many Americans have had the opportunity to improve their credit over the past few years, driving this national average up.
Since Americans with stronger credit are now entering the housing market, we are seeing an increase in the FICO® Score Distribution of Closed Loans (see graph below):
But hang on – don’t forget that this does not mean you need a FICO® score over 700 to qualify for a mortgage. Here’s what Experian, the global leader in consumer and business credit reporting, says:
FHA Loan: “FHA loans are ideal for those who have less-than-perfect credit and may not be able to qualify for a conventional mortgage loan. The size of your required down payment for an FHA loan depends on the state of your credit score: If your credit score is between 500 and 579, you must put 10% down. If your credit score is 580 or above, you can put as little as 3.5% down (but you can put down more if you want to).”
Conventional Loan: “It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.”
USDA Loan: “While the USDA doesn’t have a set credit score requirement, most lenders offering USDA-guaranteed mortgages require a score of at least 640.”
VA Loan: “As with income levels, lenders set their own minimum credit requirements for VA loan borrowers. Lenders are likely to check credit scores as part of their screening process, and most will set a minimum score, or cutoff, that loan applicants must exceed to be considered.”
As you can see, plenty of loans are granted to buyers with a FICO® score that is lower than the national average. If you’d like to understand the next steps to take when determining your credit score, let’s get together so you can learn more.
One of the most common loans you can get to buy a home is a 30-year fixed rate mortgage. If the thought of paying for your home over the course of 30-years seems daunting, here are some easy ways to shorten that term which will actually end up saving you money over the life of your loan.
Any additional payments to the principal amount (the original sum of money borrowed in a loan), helps to cut down the amount of interest that you will pay over the life of your loan and can also help to shave years off the loan as well.
When you make ‘extra’ payments toward your loan, the key is to let your lender/bank know that you want the extra funds to go toward your principal balance as they will not automatically do this for you.
You don’t have to double your mortgage payment to make a big difference either!
If you have a 30-year mortgage on a median-priced home ($250,000) with a 5% interest rate, you’ll be responsible for a $1,342.05 monthly principal and interest payment. Over the course of the loan, if you pay your exact monthly payment, you will have paid $233,133.89 in interest alone!
Paying a Little Extra Can Pay Off Big
If you’re wondering what strategies would work best for you to shorten the term of your loan, let’s get together to answer your questions.