How Credit Score Impacts Home Buying Process?
Buying a home is a much-awaited phase in every person’s life. While you prepare yourself for home buying, there are several factors that you need to understand and your credit score is one of them. Credit scores evaluate a person’s ability to repay the loan amount. It is a 3 digit number calculated by the credit bureaus in the country by collecting consumer data from customers and lenders. It is calculated based on factors like loan repayment history, duration of existing credits, etc. The credit score value ranges between 300 and 900.
So how credit score impacts your home buying process?
While applying for a home loan, the banks will assess your credit score to check whether you are a responsible borrower. A higher credit score which is between 750 and 900 is considered to be a good value and can give you several benefits like quick loan approvals, lower interest rates, etc. So ensuring a good credit score is important before you apply for a home loan. Paying your credit card bills and MIs on time will help to improve your credit scores.
Now let us discuss the main aspects that will get affected by your credit score.
Getting a loan approved can be dependent on your credit score as well. Usually a minimum credit score between 620 and 650 is required to get a home loan. If your score is not satisfactory it is better to contact your bank and understand ways to improve the number.
If you have a low credit score then chances are high that the loan amount that you get would be less than the amount you have requested. For instance if you need a home loan for Rs. 30 lakhs, with a lower credit score the bank may not approve this much. So in order to get the privilege of getting a higher loan amount sanctioned, you should try for a higher credit score.
Loan Interest Rate:
The loan interest rate is another criterion which gets impacted by your credit score. So if you have a higher credit score, the lenders will consider giving your lower loan interest rates. Even though the difference in rates will be small, there will be a significant reduction in the monthly EMI.
A lower credit score can result in increased down payment amount during a home purchase. This is to ensure that the buyer is serious about the loan repayment. For instance, if the usual down payment limit is 10% of the total amount, the lender may demand you to pay 20%.
We hope that now you have a clear idea of credit score and its impact on home buying. As already mentioned above, a higher credit score will offer you attractive loan offers, low interest rates, longer repayment timelines, higher loan amounts, etc. If your credit score is low, try to make all payments on time for the next few months and you can achieve a higher score. Also it’s important to keep a close eye on your score to check if it is improving or not.
So if you are looking forward to buying a house, maintain a good credit payment track record. You can check your credit score with the help of online portals or seek help from a financial expert.