A credit score is a three-digit number (typically 300 to 850) that represents your creditworthiness. Lenders use it to determine your mortgage eligibility and the interest rate you qualify for.
Your credit score is one of the biggest factors in determining your mortgage rate. Scores are calculated based on your payment history, amounts owed, length of credit history, types of credit, and recent credit inquiries. The most commonly used model for mortgages is the FICO score.
Generally, a score of 740 or higher qualifies you for the best available rates. Scores between 670 and 739 are considered good and still get competitive offers. Below 620, your options become more limited, though FHA loans may still be available with scores as low as 580.
Before applying for a refinance, check your credit score and take steps to improve it if needed. Paying down credit card balances, correcting errors on your credit report, and avoiding new credit applications in the months before your mortgage application can all help boost your score and secure a better rate.
A conventional loan is a mortgage that is not backed by a government agency like the FHA, VA, or USDA. Conventional loans typically require higher credit scores and larger down payments but offer competitive rates.
FHA LoanAn FHA loan is a mortgage insured by the Federal Housing Administration. It allows lower credit scores and smaller down payments than conventional loans, making homeownership more accessible.
APR (Annual Percentage Rate)The annual percentage rate is the total yearly cost of borrowing, including interest and fees, expressed as a percentage. APR gives you a more complete picture of loan cost than the interest rate alone.
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