If you wish to qualify for a mortgage and own a house, then, you need to have a good credit score. Most of the lenders consider 720 as a good credit score. It is good to know that with a FICO of 720, you should be able to get approved to get a mortgage but there are other factors that the lenders look at when approving the mortgage.
Contrary to this, there is no single credit score that can qualify as the perfect score or one that automatically qualifies you for a mortgage. The most popular form of credit scoring is the FICO score which ranges from 300 to 850. As a general guideline according to FICO: As a general guideline according to FICO:
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The scores above 760 are considered to be Excellent
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720 to 759 is Very Good
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680 to 719 is Good
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620 to 679 is fair
If the score is below or equal to 620, the credit rating is considered Very Poor.
It is worth noting that although each lender has its criteria, the majority of mortgage lenders consider a score of 620 or 640 or higher as the minimum requirement. However, to access better deals one should target a minimum score of 720. So, if you score, for example, around 720, you will be approved, but the interest rates may not be the lowest, or flexible loan programs may not always be available to you.
Things Lenders Consider With A 720 Credit Score
Although a 720 credit score is a decent score for obtaining a mortgage lenders take several variables into account when assessing the mortgage application. Here are some other important considerations they will review: These are some other important considerations they will review:
- Your assets and income are: The creditors also want to be sure you have consistent residual revenue so you may pay the monthly bills. To be sure, they will request pay stubs, tax returns, and bank records.
- Your down payment quantity is: This means that you create less credit risk for the lender the more money you are ready to commit as a down payment. Most conventional loans ask the borrowers to make down payments ranging from three to five percent.
- Lenders compute your front-end debt-to-income ratio, which is your mortgage payment plus property taxes, insurance, and Homeowner Association fees split by your gross monthly income. Additionally back-end DTI factors for various debts like credit cards, vehicles, school loans, child support, and others. Generally speaking, most lenders want a DTI of less than 36–45%.
- Your credit kind is: If your credit history shows a range of credits, including mortgage, car, student, and credit rather than just one kind of credit, it is better. This demonstrates a great deal of how well you can handle many types of loans without sacrificing your moral standards.
Apart from your score, lenders would like to see at least three to five years of credit history. This implies that a short or interrupted history might prove to be a liability even if your test result is excellent.
What Interest Rates To Expect?
Lending, and therefore the rate you can get for a mortgage, depends on your exact rating within the 720 range, your kind of mortgage loan, the current market rates, your debt level, and others.
As an example, here are the average nationwide interest rates as of 2022 for borrowers with a 720 credit score:
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Conventional 30-year fixed rate: 5. 50%
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Conventional 15-year fixed rate: 4. 75%
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FHA 30-year fixed rate: 4. 25 percent
VA 30-year fixed rate: 4,25%
These rates can however vary daily though depending on the financial market and the changes made by a lender. Therefore your personal rate quote could be even more or less than these averages depending on your full picture financially.
No Mortgage With 720 Credit Score: Preparing for it
If your credit score is currently 720, here are some tips to make sure you present the best case possible to mortgage lenders as you prepare to buy a house: If your credit score is currently 720, here are some tips to make sure you present the best case possible to mortgage lenders as you prepare to buy a house:
- Maintain or improve your credit: Stay current on all credit bills up to the time of the mortgage application to maintain or even try to build up to a 720+ score but closer to 740/750 if possible. Do not apply for credit because you will be rejected and this will affect your score.
- Save more for your downpayment: It is always wise to compare Shop around rates from multiple mortgage lenders and attempt to set a down payment as high as possible possibly 10-20% instead of the minimum 3%. This enables one to pay lower interest rates and skip on costs of private mortgage insurance (PMI).
Reduce your debt burden now: Reducing your DTI can be as simple as paying down balances on accounts such as credit cards and auto loans. Also, reduce your inquiries and new consumer debts you incur before applying for a mortgage.
Thus, having a 720 FICO credit score certainly has a positive impact on financial qualifications yet having other positive factors on the application can also help to offset if necessary a lower score if it is used where needed to convince a lender.
The Bottom Line Indeed, with a credit score of around 720, one is at a favorable starting point for obtaining approval for a mortgage as well as reasonable rates in the present era. It means that the credit report reveals a steady and responsible credit utilization over time.
More attention should be paid to improving the overall aspects that mortgage lenders pay attention to as well. This involves confirmation of income security, control of liabilities, and placement of cash resources for the intended purchase of the desired home. It will also go a long way in ensuring that one does not default once financing is approved either when you own a home now or in the future. Thus, with proper preparation, it is possible to achieve favorable terms for the mortgage even with a credit score hovering around 720.
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