If you are concerned about your credit score, you may have asked yourself “How much does credit affect buying a house?”. The short answer is: not very much. It is important to keep in mind that your credit score is just one part of the financial picture called “risk”. Your credit rating is not the only factor considered when a lender is determining your mortgage rate or what type of loan you will be approved for. Bad credit does not affect your ability to buy a house, but it can keep you from getting approved for any mortgage at all.
Why is “bad credit” different from “good credit”? For starters, if you own your own home and have a decent credit score, you are considered to be very credit-worthy. Even people with bad credit are able to get a mortgage. They simply have to pay higher interest rates due to their past credit history.
So, how much does credit affect buying a house? On a long-term basis, bad credit can cost you hundreds, maybe thousands, of dollars more in interest than good credit will. It will cost you more in taxes, penalties, and so on. When you add up all of the extra costs over the years, you probably find that the extra costs outweigh the benefits of getting a mortgage with bad credit. If you are trying to finance a new home or refinance an existing home with credit, you are likely going to come to the conclusion that it is simply not worth it.
If you know your credit score and what type of mortgage you would qualify for, you can then check your credit report and find out exactly how low your FICO score actually is. You may discover that you are eligible for a lower interest rate. This could lower your overall monthly payment amount. Or, if you can show that you have paid off a large portion of your debt, your credit rating may reflect that you are less of a credit risk. In other words, a home loan with a lower interest rate may actually help you buy a home with lower payments and a better interest rate.
Of course, there are other ways to approach the question of how much credit affects buying a how. Your credit score may impact positively or negatively on the time it takes you to make a larger down payment and closing costs. You can ask for a pre-approval from one of the lenders that you have been looking at. Many lenders offer instant approvals. They may also offer other services like a free financial review, online account management, and so on. A mortgage broker can also help you work out an achievable payment plan that meets both your budget and your needs.
One final way to consider how much credit affects buying a how is to try to improve your credit score as much as possible. You will want to pay off any outstanding debt. You will want to use your card to make regular purchases. Also, make sure to keep all your payments current. All these factors can go a long way toward improving your credit score.
This post was written by Kristian D’An, owner of Lux Credit LLC and CCA board certified credit repair specialist. Lux Credit offers credit repair services for those looking to improve their credit!