Get the Score Lenders Use to Evaluate Your Home Mortgage Loan
After you’ve determined that you’re ready to buy a home, you need to understand how lenders see you. Lenders will determine your credit-worthiness based on your FICO® scores.
By getting your FICO® scores, you can be sure that you know the kind of loan offers you should be receiving before lenders present you with numbers.
FICO® scores are the credit scores most lenders use to determine your credit risk and the interest rate you will be charged. You have three FICO® scores, one for each of the three credit bureaus – Experian, TransUnion and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your FICO® score tends to change as well.
If you don’t think that your FICO® scores are important, think again. The interest rate you can expect to pay for a loan is dependent on these scores. The difference between a FICO® score of 620 and 760 can often be tens of thousands of dollars over the life of your loan. A low score can cost you money each month or even cause the home you want to be unaffordable.
Basically, the higher your FICO® scores the less you can expect to pay for your loan. For example, on a $216,000 30-year, fixed-rate mortgage:
| If your FICO® score is… | Your interest rate is… | And your monthly payment will be… |
|---|---|---|
| National interest rates, updated daily | ||
| 760 - 850 | 6.57% | $1,375 |
| 700 - 759 | 6.79% | $1,407 |
| 680 - 699 | 6.97% | $1,432 |
| 660 - 679 | 7.18% | $1,464 |
| 640 - 659 | 7.61% | $1,527 |
| 620 - 639 | 8.16% | $1,609 |
As you can see in this example using today’s national rates, a person with a FICO® score of 760 or better will pay $234 less per month for a $216,000 30-year, fixed-rate mortgage than a person with a FICO® score of 620 – that’s a savings of $2,808 per year. You can see how essential it is to get your FICO scores in the higher ranges if they are low, and also how important it is to keep them high if they are good.
Even if you think your FICO® scores are fine, there may be errors on your credit report that you’ll want to clear up before applying for a home loan. Addressing errors before you begin the process may be annoying, but dealing with them while you’re in the middle of trying to buy a home will be downright infuriating.
Most lenders use FICO® scores from all three credit bureaus when evaluating your loan application. Your score will likely be different for each credit bureau and there may be errors on one that don’t appear on the others. When you apply for a loan, do it with the peace of mind of knowing how you’ll be viewed by lenders.
