Understanding Credit Score and Mortgage Rates Before You Apply for a Home Loan

Are you intending to purchase a new home? If so, you should know your credit score before contacting a lender. This number is an important factor in annual percentage rates (APRs), yet many prospective homeowners still wonder about the connection between Credit Score and Mortgage Rates.

Altitude Home Loans has a team of respected mortgage lenders in Tucson, AZ, and covers the importance of credit scores and home loan rates. 

What Are Credit Scores?

A credit score ranges from 300 to 850, which lenders use to determine borrower risk. The higher your number, the less likely you are to miss payments. 

FICO and VantageScore are the top two credit scoring companies, and the three credit reporting bureaus are TransUnion, Equifax, and Experian. 

FICO Scores’ Impact on Mortgage Rates

How much does a credit score affect mortgage rates? Depending on your numbers, you might be eligible for certain home loans at higher or lower APRs. It also determines how much of a down payment you must pay if one is necessary. 

In general terms, a higher credit score affords you several benefits, including:

• Access to more mortgage types
• Larger loans
• Smaller down payments
• Lower interest rates

Mortgage Rates By Loan Type

You don’t have to have a perfect FICO score or VantageScore to obtain a loan for a new home. Understanding credit scores and their relation to interest rates is only one aspect of borrowing for a new house. You should also consider how your score fits with different loan types, including:

• Conventional Loans. The interest rates for conventional home loans are typically competitive for borrowers with good credit scores. The FICO threshold is about 620. 
• VA Loans. These home loans are for eligible military personnel, veterans, and their spouses. The rates tend to be lower than conventional loans and don’t require down payments. 
• Jumbo Loans. A jumbo loan is a non-conforming mortgage with a bigger balance than current conventional loan limits, so borrowers must have a high income and credit score to qualify.
• FHA Loans. Requirements for Federal Housing Administration home mortgages aren’t as strict as conventional loans. People can get a loan approval with a credit score of 500 and a 10% down payment.

Other Factors That Impact Mortgage Rates

Credit scores aren’t the only factor that affects your ability to borrow money to purchase a property. Others include:

• Down Payment Amounts. The more you put down on your home upfront, the lower your interest rate will be. 
• Debt-to-Income Ratio (DTI). DTI compares monthly debt payments to gross monthly income. A low DTI can trigger lower mortgage rates. 
• Closing Costs. If you don’t pay these fees upfront, they will become part of the loan, raising the interest rate. 

Contact Altitude Home Loans Today

How much does a credit score affect mortgage rates? At Altitude Home Loans in Tucson, AZ, we know how to use credit scores and mortgage credit certificates to help people get the best APR for their new homes. If you’re ready to explore borrowing your options, call Altitude Home Loans at (520) 500-1010.