Although many of the people who own luxury homes in the Denver area have immaculate credit scores, the truth is that much more goes into acquiring a large mortgage than your FICO numbers. What is the right credit score for buying your dream home, and what else will lenders check?
What Is an “Excellent” Credit Score?
As people across the country are already discovering, it seems that lenders are tightening the requirements for obtaining a mortgage with every passing year. If you want to obtain a mortgage for buying your dream home, you’ll need to have above average credit, which is typically anything over a 700 FICO score. However, if you’re interested in obtaining a large mortgage, you’ll need a score in the “excellent” category, which most lenders consider to be 750 to 850. However, it is important to remember that even a credit score above 800 doesn’t guarantee that you’ll get the mortgage for your dream home. There are other factors to consider, too.
What Else Do Lenders Consider?
The more money you ask to borrow from a lender, the more closely that lender will look at your overall credit report to assess its risk. If you consider all of the factors included on your credit report, your payment history makes up about 35% of a lender’s consideration, while the amounts you currently owe come in second at about 30%. Other factors come into play, too, including the length of your overall credit history at 15%, the variety of the credit that has been extended to you, and any new credit you have obtained, both of which account for about 10% of a lender’s consideration. All of these things matter when it comes to buying your dream home.
Do You Qualify for Your Dream Home?
Different lenders use different algorithms to determine whether you are eligible for a large mortgage. You’ll need to have a substantial down payment of anywhere from 15% to 25% of the home’s value to get the best interest rates, an outstanding FICO score, and a credit history that is free of delinquent accounts and legal judgements. Lenders like to see a few accounts that have been open and in good standing with no late payments for at least two years, as well. What’s more, if you have a variety of credit cards, lenders want to see about 25% to 35% utilization of all of the credit that is available to you. This shows that you are responsible with the credit that has been extended to you.
Putting Things into Motion
If you’re ready to begin the process of buying your dream home, the best favor you can do for yourself involves checking your credit with all three bureaus and contacting them about any discrepancies you might find. Once you’ve done this, you can start working with a real estate agent to help you find your perfect home. Your agent may be able to direct you to a lender to find a product that works for you and your unique financial needs, and if not, it is always a good idea to start with your own personal bank where you have checking and savings accounts.
You’ll need more than an above average credit score when it comes to buying your dream home, so be sure to pull your credit reports and take a look around before you start the process. It could end up saving you time and money in the long run.