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Buying A Home: What’s Your Credit Score Got To Do With It?

Jaszmine Davis Jaszmine Davis Buying A Home: What’s Your Credit Score Got To Do With It?
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March is National Credit Education month, which means there’s no time like the present to educate yourself on your credit score, how it’s calculated, and how you can improve it. But what does your credit score have to do with buying a home? Everything.

Mortgage lenders have conversations daily with people who dream of owning a home but have no idea what to do or where to start.

“Before you start the process, it’s important to have an idea of how much of a mortgage payment you’re comfortable with,” said Allie Hager, Mortgage Loan Originator at Telhio Credit Union. “I always ask my clients if they’ve been renting, whether or not the rent was comfortable to handle, and if they are okay with paying more. This helps them to decide how much of a mortgage payment they can actually afford.”

So where does your credit score come in? Your credit score is one of the leading factors in determining what type of mortgage loan you qualify for. Typically, the higher the credit score, the lower the interest rate. You’ll find that the difference of a few points on your score can affect your monthly payment by hundreds of dollars.

If you’re in the market to apply for a mortgage loan, or are just curious to see where you land, check out our credit score scale.

Credit Score Scale

Poor Credit = 300 to mid-600s

You’ve got work to do, but you do have options! If your credit score needs some TLC, take action to improve it. Start by making on-time payments on all of your bills, checking your credit report for errors, and working to pay down credit card balances. Make sure that you have established three lines of credit that have been active for at least a year. We also recommend beginning the home buying process at least 90-120 days before you start looking at homes. This gives you enough time to sort out your finances and start repairing your credit to get the best rate possible.

It is also important to know your lender options. When you have a subpar credit score and want to buy a home, it may benefit you to look into credit unions and community banks first. They have a reputation for helping home buyers with below average credit. They also offer secured credit cards and other resources that can help you establish credit or improve your score quickly.

Fair to Good Credit = Mid-600s to mid-700s

Congratulations! A credit score in this range means you’re likely to qualify for a variety of loan types. For those in the Fair category, consider FHA or VA programs that often have lower credit score qualifications and help borrowers with low down payments.

If you score in the Good range, your options increase significantly. You may qualify for mortgages with lower interest rates, including conventional, USDA, and HomeReady loans. We advise maintaining your good score by paying bills on time, avoiding opening new lines of credit, and paying off any outstanding debt.

Very Good to Excellent Credit = Above mid-700s

High five! You’ve hit the credit score jackpot! This means you will likely receive the lowest rates available with more options on the table. With a credit score above 700, you may qualify for jumbo loans in addition to other mortgage types. A jumbo mortgage is a non-conforming mortgage and is used when a homebuyer is seeking a loan that is greater than the conforming loan limit in the area.

Bottom line, if you are starting the home buying process, know your credit score. It isn’t the only factor in the mortgage approval game, but it will help you better predict the types of loans and interest rates you can expect.

For more information, visit telhio.org.

This is a mutli-part sponsored series presented with paid support by Telhio Credit Union.

Telhio Credit Union is open to anyone who lives, works, worships or goes to school in Franklin, Fairfield, Delaware, Licking, Madison, Pickaway, Union, Hamilton, Warren, Butler and Preble counties. Founded in 1934, originally as the credit union for the Columbus Telephone Co., Telhio is a not-for-profit financial cooperative where its members are also its owners. Driven by its philosophy that members come first, Telhio is committed to the highest standards of responsibility and conduct. Telhio offers a variety of innovative programs, services and products to support its members’ financial needs. Telhio offers 10 branching offices throughout Central and Southwestern Ohio and nearly 4,000 shared branching locations nationwide. Federally insured by NCUA. Equal Housing Lender. All loans subject to underwriting approval and guidelines.  NMLS #251831

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