04 May The Bibel Team: Credit Score Needed To Buy A House, Debt To Income Ratio, & Mortgage Rates!

Hey everyone today, we’re going to talk about credit scores needed to buy a house, mortgage rates, debt to income ratios, and more.

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So at the end of the day, credit scores are really the ticket to the game. For most, actually, any and all financing options that are out there, your credit is basically the barrier of entry. So what’s looked at on a credit score? It’s not just the credit score that banks are reviewing in all financing instances, it’s the overall credit profile. So the score is, do you qualify for this product? So yes, it’s very, very important. But your overall credit health is equally as important as we go into the different financing options. So when looking at different loan programs, we’ll see a baseline score requirement. So for instance, conventional financing. Standard Manila loan, minimum credit score requirements, 620. When we start getting into government type financing–so your FHA loans, VA loans, USDA loans, minimum credit score requirement becomes 580.

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When we start getting into the higher price mortgages, so jumbo loans, basically the larger financed options, minimum credit score typically will run anywhere between 680 and 700. Generally the higher credit profile required. With that too, the credit score dictates, for one, the type of program that we can utilize, and two, the interest rate that you receive. So naturally the lower one’s credit score, the higher the interest rate is. Interest rates are a risk mitigator that ultimately tells the bank how much risk we’re taking by extending financing to this individual. Higher credit score yields a lower risk, which in turns yields a lower interest rate.

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So all that ties together around the credit piece and what that dovetails into for the different financing options. It’s again, the critical baseline to determine what different options are available to you. So, in meeting with a mortgage professional, what we’re doing in analyzing to ensure that your credit profile is optimized is, when we review a credit report, if there are any inaccuracies that appear there, we’re going to help guide you to get those items corrected, and connect you with the necessary people to help provide insight around, how do I get this removed? How do I get this updated? How do I draw my score up, components around that, credit utilization. The whole credit review piece is something that my team really specializes in, in helping you in your journey towards home ownership.

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And then, segueing into debt to income ratios, credit report is what funnels into your debt to income ratio. As I’ve talked in previous videos about debt to income ratio and buying power, debt to income ratio, again is your proposed housing payment plus any and all revolving obligations that appear on the credit report divided amongst your gross monthly income. When a mortgage bank pulls your credit profile, pulls your credit report, within that credit profile shows all your current carried liability. So like car payments, student loans, minimum payments made to credit cards. Essentially, any and all revolving debt. With that coupled with the credit score, that will dictate the different loan programs in which we seek after.

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Certain programs have maximum thresholds in which they will allow your debt to income ratio to go to, meaning how much you can borrow. So they will say, hey, at ‘x,’ so, one specific debt to income, the ratio limit, they’ll say, this is the most that we’ll allow from a monthly payment standpoint. So understanding what items we can look to reduce or remove from the credit profile by paying off different options within that to help maximize your buying power is super crucial.

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Additionally, what that kind of ties into, is mortgage rates. So again, credit profile is really the ticket to the game. It dictates the loan program that’s available, your borrowing power, but more importantly, it dictates the interest rate which you receive. As I said earlier, a lower credit score will command a higher rate. And that’s again, around risk identifying. One’s lower credit score from a bank’s perspective is going to carry more innate risk, which in turn, the ability to offset risk is charging a higher rate. Higher credit score commands a lower interest rate. So something that we default to as a team is really mortgage planning. So when we connect with a client, whether they’re looking to buy now or in the future, we immediately go through the credit profile with them or the credit report with them to identify ways to maximize the credit score. To ensure that they’re not falling into that category where they receive the worst case interest rate scenario.

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So here, with that analysis of my team and I, we’re going to help guide you to ensure that you’re taking full advantage of the best case pricing scenario that’s available. So all those components together really dictate what different financing options are available to you. And again, it’s case by case. It’s done by each individual. It’s tailored specifically to you and your overall needs. We would love the opportunity to serve you and help guide you through this home buying process. Please give myself and my team a call today. And again, if you like what you’re seeing, please like, subscribe, comment below. Thanks again.