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Do Credit Scores Affect Mortgages?

Your credit score is simply your creditworthiness. It is usually a number between 300 and 850, and a lender will likely use this score to evaluate your probability of repaying a loan on time. The number of open accounts you have, your debt repayment history, and your current debts will determine this score. 

Your credit score is likely to affect most of your financial transactions. For instance, it will influence your chances of getting a mortgage. Below are more details on how your credit score will affect your mortgage. 

How Your Credit Rating Will Affect Your Mortgage

Just like other lenders, mortgage lenders always want only to give mortgages to responsible borrowers. Therefore, a mortgage lender will check your credit rating to know whether you are a responsible borrower or not. The rating will determine the kind of mortgage you can get and the amount of money the lender will give you. You will be eligible for a mortgage if your credit score is 630 or above.

Will Your Credit Rating Affect Your Mortgage Rates?

Your credit rating will affect your mortgage rates since mortgage loans are priced according to the risks associated with a borrower's credit profile. For instance, if your credit score is poor, expect your mortgage to have a high interest rate and vice versa. Below are more details about what mortgage lenders consider poor, fair, good, and excellent credit scores. 

• Your credit score will be considered excellent if it is 740 or higher

• Your credit score will be regarded as poor if it is 629 or lower

• Your credit score will be considered fair if it lies between 630 and 699

• Your credit score will be regarded as good if it lies between 700 and 739

Your Credit Rating Will Affect Your Loan-to-Value Ratio

Mortgage lenders usually use the loan-to-value ratio, LTV, to determine the amount of risk they will take when giving out mortgages. This ratio is calculated by dividing the mortgage loan amount by the appraised property value. It is usually expressed in the form of a percentage. For instance, if the appraised property value is $200,000 and you qualify for a 90% LTV, you will get a mortgage loan of up to $180,000. 

Your credit rating will determine the loan-to-value ratio that you can qualify for, thus, affecting the amount of mortgage loan you will be given. For instance, if your credit score is excellent, you will likely be eligible for a 95% LTV. However, if the credit score is fair, you will only qualify for an 80% LTV. If your credit score is below 620, you are less likely to be eligible for a mortgage. 

Your credit score will be determined by your debt repayment history and is likely to affect your mortgage. For instance, mortgage lenders will use it to determine the amount of money they can lend you. The credit score will also determine the LTV you can qualify for and the interest rates you will be charged.