Is Your Credit Score Too Low to Get a Mortgage?

With the spring home-buying season right around the corner, it's time to start gauging whether or not your credit score is up to snuff.

Mar 22, 2014 at 1:00PM

G

If you want to get a mortgage this year, you need a credit score of at least 620. But if you want the best interest rate, the threshold increases to 740. These are the two primary benchmarks that homebuyers need to be aware of, says James Adair of Portland, OR's Aspire Mortgage Group.

While lending standards have increased over the past six years, this range shows that qualifying for a mortgage is still well within reach of many Americans. According to estimates, for example, approximately 75% of the U.S. adult population has a credit score above 650.

But making the cut is only the table stakes. The big difference concerns how much your mortgage will cost. And your precise credit score does have an impact on this.

Take a look at the following table. This is a matrix that mortgage brokers use to determine how many points someone will be charged for a home loan based on their credit score and the size of their down payment (a point is a form of prepaid interest; one point equals 1% of the loan amount).

G

Starting in the top left, let's say your credit score is 750 and you put 35% down on your house, translating into a loan-to-value ratio of 65%. As I've depicted with the number "1," you wouldn't owe any points. That's great!

Now, let's say that your credit score is 690 and you put only 17% down, equating to a loan-to-value ratio of 83% -- see number "2." In this case, you'd owe one and a half points. If you were getting a $200,000 mortgage, in other words, you'd have to prepay $3,000 in interest or agree to a higher interest rate over the life of the loan.

Finally, if your credit score just makes the cut at 625 and you put only 4% down on the house, you'd be assessed three and a half points -- see number "3." On a $200,000 loan, this would come out to be $7,000.

The lesson here is simple. If you want to get a mortgage, the chances are good that you can do so, as your credit score needs to be only 620. But after that, both a higher credit score and larger down payment decrease the cost of your mortgage. It's primarily for the latter reason, in turn, that protecting your credit score is so important.

To discover how easy it is to boost your credit score, check out the following brief presentation.

Are you looking for stocks that could make you rich?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers