Buying your first home can be very expensive and saving for it could take decades. A mortgage makes this American dream a possibility. Find out the credit score you need to apply for it.
Instead of having to wait for ages to save enough cash to buy their own house, many first-time homebuyers choose to take out a mortgage. This is the name given to a loan and legal contract to finance the purchase or renovation of a house. In return for the bank loan you money to purchase or fix a property, it designates your new home as collateral, which means that if you are unable to pay back the loan, the bank can take back the house and sell it to cover the debt.
Now, if you want a mortgage you need to know what credit score is needed for you to qualify. Statistics show that that 9 out of 10 U.S. mortgages go to borrowers with a score of 650 or better. Three quarters go to borrowers with scores higher than 700, meaning that the large majority of mortgages go to Americans with better-than-average credit.
The most commonly used scores taken into account when applying for a mortgage are FICO scores 2, 4, and 5.
The credit scores are usually contained in a larger product known as a residential mortgage report or RMCR, which also includes information from Equifax, Experian, and TransUnion. These pieces of information are usually filtered, and thus RMCRs are referred to as merged reports. They are a screened out version of information from different sources.
RMCR is used by mortgage lenders for three main reasons:
1-Not all creditors report to all three credit bureaus and this is why the only way a lender can know your true credit profile is using information from all three.
2- Mortgage lenders use the middle of three credit scores to make their decision.
Therefore, if your scores are 730, 786 and, 680, your score will be 730.
3. RMCRs contain additional information regarding your residence and employment history that is used as verification of what you enter on your loan application.
If your plan is to get a mortgage and you are worried (or already know) that you have a poor score, there are several ways to improve it before you apply. Paying your bills on time is the best way, of course, but other factors, like the amount of unused credit available to you or the length of your credit history, are also important.