October 2019 Rochester MN Real Estate Market ReportIt's starting to get a little chilly out, but the Fall colors are looking great!I wanted to share the October 2019 Real Estate Market Report
Whats A Good Credit Score For A FirstTime Home Buyer
What's a Good Credit Score for a First-Time Home Buyer?
Are you looking to buy a house for the first time?
Real estate can be a tricky business. People new to real estate often need professional help, but with the right advice, you can do it all on your own.
There are a lot of things a first time home buyer needs to take care of before they should buy a house. You need to look around for the best house you can afford, save up to pay the down payment, negotiate as much as possible to bring the price down, and get approved for a mortgage.
However, before you can begin doing any of that, you have to take into consideration your credit score.
Below, we'll go further in depth in discussing credit score. Read on to know more about you and the real estate opportunities available to you.
What is a Credit Score?
The first time you'll apply for a loan in a bank for, in this case, a mortgage for your house and property, they will first ask to see your credit score.
A credit score is a three-digit number that banks use to determine whether you are worthy of a loan. This number is often found on your credit report.
How high or low the number depends on your financial history. Things like the average time you take to pay back a loan are one of them. As well as the types of credit you have, and how much of them you're using at the moment of application.
In essence, it tells the bank of how much they can trust you to pay back your loan. While you can still get a loan for your mortgage with a bad credit score, you'll get punished by the large interest rate.
Credit Score Guidelines
You can have a credit score as low as 300 and as high as 850. FICO (Fair Isaac Corporation) has made a score calculation system that helps bankers rank your credit score. This also helps them determine what kind of interest to give you, but more on that later.
Depending on what you're applying for, your credit score can have a different grade. In general, scores at 300 to 600 are poor credit scores. This means you will have little to no chance of securing your loan.
Scores from 601 to 660 are what people consider to be average. These scores will grant you a slight chance of getting your loan. You can increase the chances even further by providing a collateral.
Above average scores are ones around 661 to 780. You are more likely to secure a loan with little to no trouble when you have a credit score as high as this.
If your credit score is 781 to 850, then you're considered to have an excellent score. You can choose to buy a house now or wait until you are feeling secure with your financial situation.
What is a Good Credit Score to Buy a House?
All you need is a FICO 500 credit score to buy a house. However, having a credit score of 620 and above will give you better options. It can also give you a wider allowance for you to breathe.
Most of the time, an average credit score will allow you to have more of negotiating power with your bank. A FICO score of 620 is also considered by most banks to be the benchmark when giving a loan. However, some banks take more things into consideration when deciding to approve your mortgage.
Some lenders ask for more documents like your proof of employment or proof of income. This is to determine whether your income will be enough to be able to pay your loan in time. They also take a look at your credit history to look out for anything suspicious going on in your finances.
They use your credit history to look at your credit score's history to determine whether you've had trouble keeping up with your debts or not, as well as determining the interest rate you'll get.
Lenders use all this information and compare it to the amount you've requested and the price of your home. They use these factors to determine if you're creditworthy. So, the bottom line is that you need at least a credit score of 620 and a good credit history to secure a loan with little to no problems.
What Kind of House Your Credit Score Gets You
The kind of house you get depends on how much you get for your loan. And the deciding factor for that is how good your credit score is.
You will get a loan that reflects your credit score and your credit history. So, even if you have a credit score of 500, there is still a chance for you to get a decent loan. All you need to do is maintain a good credit history
Bad Credit Score
If you have a credit score of 500 or even lower, there are still ways for you to secure a loan. However, you will not have any negotiating power and your interest rates will be high.
You can expect to have an APR of 6.16% to 5.631% and, depending on the lender and how long you have to pay, you can borrow up to $25,000 with ease.
Many lenders will allow you to borrow higher amounts, but these tend to have a higher APR and payments per month.
If you have a 620-639 though, you are still within the bad credit score range. This is because it's considered to be a subprime credit score when it comes to mortgages. However, you will have no penalties compared to those with credit scores lower than this. You will instead receive standardized rates for loans.
Average and Above Average Credit Score
Having an average credit score of 640-659, 660-679, 680-699, and 700-759 have APRs of 5.085%, 4.655%, 4.441%, and 4.264% in respective order.
You can expect to get a large loan, up to $35,000 with no problems. Higher amount loans will be easy provided you have a good way of generating income.
Exceptional Credit Scores
Borrowers with credit scores ranging from 760 and above will find it easier to secure a loan. APRs will be as low as they can get with these credit scores. No more than 4.042% for a low 6-digit loan.
You will have more flexibility with your loan payments as well. Meaning you can spend more on house vanities like pools or fall gardens without having to worry too much.
How to Improve Your Credit Score
Should you ever find yourself short of the credit score needed to buy a house. There are many ways you can increase your credit score. The best way of doing this is paying your loans as soon as you could. Making payments as soon as they come will reflect well for you in your credit history.
You should also settle your debts first before applying for a loan. Having a large debt will alarm lenders that you are not responsible with your finances. This will make it less likely for them to grant you your loan. This also helps lower your debt-to-income ratio by a small amount at a time.
Cutting down on expenses also plays a large part in credit score improvement. Learning how to control your finances will decrease your debt-to-income ratio by a large amount. So, only spend on things that are necessary.
Also, you should always review your credit reports when you can. Staying on top of your finances and having exceptional credit knowledge is something most people make a mistake with when it comes to managing their finances.
Different Ways to Secure a House Loan
There will be times when you need to secure your loan as soon as possible. You may need to give the down payment first before someone else does. In cases like these, you can offer up collateral instead.
You can offer up other things with a high value such as car titles, valuables, jewelry, future income, stocks, bonds, invoices, and other investments, as well as a blanket lien if you are confident that you'll be able to pay it back on time.
Failing to pay back often results in you losing any claim you have on the collateral given to the lenders. So, you better think hard about whether you can afford to lose your collateral or if you can pay the amount in time.
This also works well for you if you have a bad credit score. Keep in mind that you will need a collateral equal to or greater than the amount you've requested for a loan.
First Time Home Buyer? Learn All You Need to Know About Credit Scores Now
Get yourself a house now! The population is on the rise and there are only around 136.57 million housing units left available. Get one before the good ones are gone!
Are you a first time home buyer? Not sure about all the steps to buy a house, secure a loan, or what to look for in new property? Contact us here and we may be able to help you out!
Dan is a licensed realtor in Minnesota. Since 2011, Dan has been a co-owner of the Realty Edge Team with Kyle Swanson, at eXp Realty, at 300 1st Ave NW in Rochester, MN. He shares his life with his so....