What You Need to Know About Credit Scores and Home Buying

by The Zack Grimmer Group, Powered by Real

What You Need to Know About Credit Scores and Home Buying

Thinking of buying a home in 2025 and not sure if you'll qualify for a mortgage?When it comes to buying a home, your credit score is an important factor—but here’s some good news: it doesn’t need to be perfect to make your homeownership dreams a reality!

Many people don't understand how credit works, how it affects them and how they can improve it. As a local real estate and mortgage team, we work with people with credit scores at both ends of the scale. Our Team prides ourself on helping people improve their credit score so they have the best home buying oppurtunity.

Let's dive deeper into credit scores;

What is a Credit Score and Why Does It Matter?

Your credit score is essentially a snapshot of your financial responsibility. Lenders use your credit score to evaluate how likely you are to repay a loan. Your credit score can also affect the rate when you buy or lease a car, your auto and home insurance rates, and even potential job offers.

When you’re applying for a mortgage, your score plays a big role in determining your loan terms, including the interest rate you’ll pay. When you have a higher interest rate on your mortgage, more of your monthly payment goes towards interest and less towards the principal of the loan. This means it takes longer to pay off your mortgage.

Most lenders look for credit scores in the range of 500 to 700 to qualify. A higher credit score can mean access to better interest rates and more favorable loan terms, potentially saving you thousands of dollars over the life of your mortgage.

Tips for Improving Your Credit Score

If your credit score isn’t where you want it to be, don’t worry—there are steps you can start taking to improve it. Working with your Mortgage Advisor to determine what your current credit report reflects is a great starting point. From there, they can provide you with some tips to improve your score and can refer you to a trusted Credit Repair partner.

Here are some basic tips to improve your credit score;

Pay Your Bills on Time:

A missed payment can significantly impact your credit score, and the impact increases the longer the payment is late. Late payments remain on your credit report for seven years, but the impact lessens over time. You can also try contacting your creditor or writing a goodwill letter to ask them to remove the negative mark.

Tip: Prioritize making the minimium amount due by the due date.

Reduce Your Debt:

Lowering your credit card balances relative to your credit limit can boost your score. A high balance can lead to a high credit utilization ratio, which is the percentage of your available credit that you're using. High balances can also increase your debt-to-income ratio (DTI), which can make it harder to qualify for new credit or loans.

Tip: Keep your credit utlization rate low and pay off your credit card balance instead of revolving debt

Avoid Opening New Accounts:

Too many recent credit inquiries can temporarily lower your score, so focus on managing your existing accounts responsibly. Some ways opening a new account can affect your credit score include;

Hard inquiry

When you apply for a new account, the lender will typically run a hard inquiry on your credit report. This can temporarily lower your credit score by a few points. Hard inquiries remain on your credit report for two years, but usually only affect your score for about a year.

Credit age

Opening a new account can reduce the average age of your credit, which may lower your credit score.

Payment history

A new account can add to your payment history, which is a major factor in calculating credit scores. Making on-time payments can help you build a positive payment history and improve your credit score.

Balance increase

How you use your new account can have a big impact on your long-term credit score.

In contrast, opening a checking or savings account usually doesn't impact your credit score. However, some banks may perform a hard inquiry when you open an account, which can temporarily lower your credit score.

More Than Just a Credit Score

While your credit score is important, it’s not the only thing mortgage lenders take into consideration when you apply for a mortgage. Other factors include:

Savings:

Do you have enough for a down payment and closing costs? Mortgage closing costs run from 2% to 6% of the loan amount, including property taxes, title insurance and more.

Income:

Lenders want to ensure you have a steady income to cover mortgage payments. They will look at your Debt-to-Income (DTI) ratio as well as income stability. Lenders look at how long you've remained with employers and whether your income has increased with each transition.

If you recieve additional income, be sure to include this on your mortgage application. This could include; military benefits, alimony, child support, commissions, overtime, and investment accounts.

Debt-to-Income Ratio:

Your Debt-to-Income (DTI) Ratio measures how much of your income goes toward existing debts. Lenders typically prefer a DTI of less than 36%, with the mortgage accounting for no more than 28% of income. A lower DTI can potentially qualify you for a lower interest rate.

These additional factors mean that even if your credit score isn’t perfect, you might still qualify for a mortgage.

Ready to Explore Your Mortgage Options?

Navigating the home-buying process can feel overwhelming, but you don’t have to do it alone. Working with a trusted real estate and mortgage professional can relieve much of the stress when it comes to buying a home.

Whether you’re working on improving your credit or ready to start house hunting, let’s connect! Together, we’ll review your mortgage options and create a plan that works for your unique situation. Homeownership could be closer than you think. Let’s make it happen, together!

Source: Buy Side from WSJ

The Zack Grimmer Group, Powered by Real, is a Residential & Commercial Real Estate and Mortgage Team that was founded in 2021 by Zachary ‘Zack’ Grimmer. We assist our clients who are looking to BUY, RENT, SELL or INVEST in real estate throughout Pennsylvania, New Jersey, Florida and Maryland! We are tech-enabled and data-driven, giving our team the necessary tools to successfully broker real estate in any market. Our mission is to provide white-glove service to our clients and investors. Browse our website at www.ZackGrimmerGroup.com to learn more about all the real estate services we offer to our community.

Please feel free to contact us at admin@ZackGrimmerGroup.com or (215) 667-0239 or follow us on Facebook & Instagram, to learn more.

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