Worried about Your Credit? 3 Things to Consider

Americans are taught from an early age to obsess over their credit scores—that three-digit number that’s so important in your financial life, especially when it comes to borrowing. But is your score really that important when it comes to securing a mortgage? As it turns out, the answer is yes—and no.

1. It Used to Be Easier

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Although the global subprime mortgage crisis is happily receding in the rear-view mirror, it’s had a lasting effect on the availability of credit. During the peak of the crisis, it might have been possible to secure a mortgage even with a particularly shaky credit history.

That’s no longer the case in today’s market, which has adjusted to reality. In the end, however, that’s probably a good thing for borrowers. If your credit history is poor, it generally makes more financial sense to focus on other debts and obligations before purchasing a home—and finding yourself struggling to meet your obligations

2. There’s No Need to Overestimate

 Many first-time home buyers mistakenly believe that they need absolutely stellar credit in order to secure a mortgage. In fact, that’s often not the case. Though you should absolutely boost your credit score as much as possible, the minimum credit score required to purchase a home is generally considered to be 620 (in some specific cases, you may even be able to secure a loan with lower credit).

That’s not to suggest that high credit scores don’t matter. The better your credit, the lower the interest rates on your mortgage will be, and that’s something you’ll want to consider closely. Lower interest rates mean not only that you’ll pay significantly less over the lifetime of the loan—possibly tens of thousands of dollars or more—but also that your monthly payments will be lower, which means you’ll have more cash available for other important expenses.

 3. Credit’s Not the Only Factor

Ultimately, when it comes to securing a loan, it’s not just about your credit. In fact, a recent survey of loan officers found that they look most closely at your debt-to-income ratio when considering whether or not to finance a mortgage, and that’s only one of many components of your credit score. Ideally, your ratio should be at 35% or under.

At the end of the day, your credit scores (or FICO scores) only tell a partial story. Ultimately, many loan officers feel that a home buyer with a less-than-ideal credit score, whose debt and income demonstrates an ability to afford a home, is a safe bet.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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