Credit Scores and Their Impact on Real Estate Financing

Whether you are buying or selling, your credit score plays a major role in your financial approval. Credit scores can impact your real estate financing. Therefore it is important to fully understand what a credit score is and how it affects you when seeking real estate financing.

The definition of a credit score refers to the number that reflects your credit worthiness at any given point in time. When you are seeking a loan the lender will run a credit report to determine if you are worth investing in.

So why do lenders use credit scores? They have to calculate the risk involved and credit scores provide a consistent and objective way of measuring risk, by looking at your likelihood to repay debt based on your past credit history and current credit status.

Lenders will typically look at these factors:

  • The number of new accounts and credit requests you’ve made.
  • Your credit risk.
  • The length of your credit history.
  • Your total debt.
  • Your payment history and the record of paying your bills on time.

Overall, these factors point to your ability to be trustworthy, ensuring lenders will get the money back that they lend you in the right amount and on time. Therefore, in relation to obtaining real estate financing a poor credit score is not ideal. It could significantly reduce the amount you are approved for. It could also result in you being rejected from being able to obtain financing altogether.

Be aware of the different types of credit scores:

According to Experian, generic credit scores are used by many types of lenders and businesses to determine general credit risk. Custom credit scores are developed for use by individual lenders. They are unique to the specific business or apply to specific types of lending, such as mortgage or auto lending.

In all, lenders use credit scores because they tend to be a consistent and objective way of looking at your credit. Keeping your credit score around 700 or better is recommended and considered a good credit score. Poor credit scores can significantly reduce your chances of obtaining real estate financing. At North Florida Mortgage we are dedicated to helping you get the financing you need to obtain your dream home. If your credit score is less than 700 there are different loan programs that allow you to get financing. If you have questions concerning our different loan programs contact us today.

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