As I’m sure you’ve seen or heard, given the recent chaos of the housing market, a solid credit score and current pre-approval are two necessities while shopping for a new home. Doing a little research into your current financial situation will help make you feel confident when the time to apply for mortgage rolls around.
For those of you who are not well-versed in credit scores, here’s the cliff notes version.
Credit scoring tells a lender or financial institution how diligent you have been while paying your bills. The higher your credit score, the better. This tells a lender that you’re not likely to default on a loan or forget to pay your mortgage. Also, the higher your credit score, the lower your interest rate will be!
The takeaway: pay your bills on time, and that 800+ score will be your pride and joy. You’ll be every lender’s favorite client.
If you’ve had a few hiccups (aka late payments), your credit score probably isn’t in the A+ category. Don’t despair. It doesn’t mean you can’t qualify for a mortgage, but it does mean your interest rate will be slightly higher. The minimum score required to qualify for a conventional mortgage loan is 620.
The takeaway: auto-pay is your friend. Set it and forget it.
Because buying a new house isn’t stressful enough as it is, there are also different types of “pre-approvals” a lender can provide you with prior to making any offers.
Pre-approval vs. Conditional approval
A pre-approval from a lender tells the seller and real estate agents that your credit score has been verified. Your income and employment are verbally verified at this point.
A conditional approval verifies your credit score, income, and assets through a direct underwriting system. This is a much more reliable and thorough process.
While shopping for a home, a conditional approval is a much better asset. This will assure the seller that you are already qualified to purchase and shows that you are a serious buyer. A conditional approval is especially great to have in today’s housing market, which is unbelievably competitive. Multiple offers and over-bidding galore!
Interested in learning more?