When you are ready to purchase a house, many factors are taken into consideration by mortgage lenders. These, such as payment history, salary, and current economy, affect the amount you can take out and the interest rate that will be charged. Your credit score, though, is also a large factor in these. Find out more about how it affects the house you can afford.

Mortgage and Credit Scores

Mortgage lenders see your score as a predictor to getting their money back. The higher the number, the more likely they are to be paid back in full. If you are planning on taking out a government-backed loan, you need a minimum credit score of 620. Some companies, though, can reject you if too much of your income is spent on previous debt.  The government also offers FHA loans that you only need a 580 score for. FHAs need to be used on homes that meet specific criteria and allow you to have a lower down payment. Veterans can attain mortgages regardless of credit scores, though interest rates are affected.

Interest Rates and Credit Scores

The lower your credit score, the higher your interest rate. This ensures that the bank gets their money back faster in case of foreclosure or non-payment. Interest rates vary on a daily basis, but a credit score of 760 may get you an interest rate around four percent. Move the score to 620 and your interest rate suddenly jumps to over five and a half percent. It may seem like a small percent difference, but over the lifetime of the loan it adds up.


As your score affects your interest rate, it also determines your budget. With a lower interest rate, you may find that you can purchase a more expensive house because less is put into interest. Most people find, though, suddenly they need to find a smaller home or focus on short sales and foreclosures to get the property they want. The higher interest rate can be a difference of $50,000 over the loan’s life. When you thought you could afford a home at $300,000, suddenly you need to find one for $250,000.

Changing Your Credit Score

Remember that credit scores change on a monthly basis, so you can do work to raise the number. Start by looking over your credit report, which can be done for free each year, to ensure there are no errors pulling your credit down. If so, render these immediately. Any accounts with zero balance should be left open, not closed. This actually helps boost your score, especially if it is an older account. And, if you have multiple accounts, it helps your credit if you have a little on each one rather than a lot on one and none on the other. This is because it shows that you handle the payments correctly.

It is important to note that each mortgage lender has their own criteria for determining your credit score. While one bank may find you are at 615, another may put you at 652. This is why shopping around can be helpful if you are close. Your realtor may have tips for you as well that are specific toward your situation. When you are ready to discuss buying a house and the process, contact an experienced realtor like Laurie Stoessel at (303) 378-2320 today.