Good Credit Score for Mortgage

A good credit score is an asset that any person can exploit while availing a loan. A mortgage loan is a loan that is availed to purchase a real estate and in most of the cases it assumes the role of a home loan. A signature characteristic of average mortgage loans is that it is a secured loan with a repayment period that may span more than a decade.

In the United States of America, 2 organizations recommend mortgage underwriting guidelines to lenders, Fannie Mae and Freddie Mac. According to these guidelines there is a range of credit score that can get a borrower favorable terms and conditions from the lender.

What is a Mortgage Loan?

A mortgage loan is principally a real estate loan that is used to purchase a real estate. In the United States after the subprime mortgage crisis and economic recession, the Bush and Obama administration successfully revived the real estate and mortgage financing sector. The past mortifying experience has however blown a wind of caution into all mortgage transactions.

When you apply for a mortgage, you will be submitting to your potential lender a lot of financial literature and a lot of personal facts. So what will the lender look for while underwriting the loan? Here's the answer.

• The first fact which will be considered is the credit report, which includes the credit history and credit ratings. In the history even a single loan default will invite a downright refusal to underwrite the loan.
• On the ratings side you have your FICO credit score. As of today, during the post recession era, mortgage lenders have abandoned the concept of subprime lending (lending to people with low scores). Hence, if you want a loan, you will need a good credit score, that is above at least 660 or better off above 700.
• The third important factor of the mortgage loan approval and underwriting is your income and reliable liquid assets such as your car, other real estates, equity and stocks held, securities and insurance policies. Basically the lender wants to know whether the borrower is capable of repaying a certain loan or not.
• The last factor that the lender will check is some of your personal details such as the income of your spouse, your educational qualification and current employment and future employment prospects.
• In the mortgage underwriting process the lender also anticipates the future value of the real estate that you are planning upon purchasing.

The better your underwriting points the greater is the chance of approval.

What is a Good Credit Score for Mortgage Loan?

A good credit score always has a number of advantages and there is always a chance to improve credit score. Mortgage loans have an APR (Annual Percentage Rate) that is decided as per the credit score and the credit score range in which your credit score exists. Firstly, lenders approve and underwrite loans that are above the 'Average' or 'Good' category as per FICO score.

The general principle is that better the credit score, the better is the interest rate (sometimes also known as a mortgage rate). As per MyFICO, a $300,000 for 30 years will yield a 5.739% APR which equals to $1,749 installment per month for a credit score that ranges for 620-639. The 620-639 bracket is the least favorable score as the interest rate is high. On the other hand the bracket 760-850 which is the highest credit score will get you a 4.150% APR and a liniment $1,458 installment. Thus the better your credit score the less you have to pay.

To approve the loan, the lender will not bother looking for details about your credit history and report, instead if it is a good credit score, he would just approve it right away. The reason that you should have the best score instead of a good credit score, is that you will get the cheapest possible rate of interest.