Purchasing a home costs $700000 is a big investment that cannot be decided on the spur of the moment or without financial modeling. A credit score is another important consideration that is used by most lenders while offering home loans, especially for high-end homes.
Specifically, common recommendations from mortgage lenders and financial advisers include a 720 or better credit score to achieve the lowest interest rates on a jumbo loan of more than $510,400 which is the FHFA's 2022 conforming loan maximum. Still, it's important to realize that the criteria for a credit score might differ amongst lenders.
Why Credit Scores Matter
Lenders also evaluate your creditworthiness and perhaps mortgage eligibility using credit ratings. Nonetheless, it is interesting to know that the lending firms see less credit risk the higher your credit score is. Larger loan amounts and better interest rates are therefore yours to qualify for.
Most likely, a $700,000 home loan will need you to get a jumbo loan. Jumbo loans are those exceeding the FHFA's set lending limitations. Generally speaking, jumbo loans call for more down payment and a better credit score than regular loans. In contrast to conforming loans, even conventional jumbo loans have more restricted debt-to-income ratios.
With scores ranging from 300 to 850, the FICO Score is the most often used credit rating model used by lenders. In general:
- Credit scores of 760 and above are considered to be very good.
- 720 to 759 Very Good
- 680 to 719 Good
- 620 to 679 Fair
Credit Score Requirements
Here are typical minimum credit score requirements from major lenders for a $700,000 jumbo mortgage:
- Chase, CitiMortgage: 720
- Wells Fargo: 740
- TD Bank: 725
- Quontic Bank: 700
Indeed, you must have observed that a 720 FICO score is ideal for a jumbo loan of this magnitude. Understanding credit scores means that the higher the score, the better the mortgage rate that is available in the market. At Good Credit, the interest rate is a little higher, and at this level, you may be eligible for the lowest interest rates if you score 760+.
A score below 700 means that you may struggle to secure a jumbo loan from a lender out there. Most subprime lenders who provide loans for Low credit score clients are likely to avoid financing luxurious homes. You may have to wait and establish your credit first.
The ingredients that make up the credit score
The factors that determine your FICO credit score include: The factors that determine your FICO credit score include:
- Account history – captures the ability of an individual to pay your credit on time (35% weighting)
- Credit limits – evaluates credit utilization and balance owed (30%).
- New credit – calculates total credit established in the past 12 months (10%)
- New credit applications - controls the frequency of new credit applications (10%).
- Credit utilization – compares the kinds of loans and credit facilities (10%)
To reach a Very Good 720 score or higher: To reach a Very Good 720 score or higher:
- Always make all necessary payments on or before the due dates of these bills.
- Credit utilization should not exceed 30 percent.
- Establish and retain credit accounts with long-standing credit relationships
- Reduce credit application
- Have mortgage loans, credit cards, auto, and all kinds of credit.
However, credit score is not the only criterion that lenders use when deciding whether to approve your loan and what interest rate to set for your mortgage; other factors include your DTI ratio, down payment, assets, employment records, and other factors. However, keeping a credit score above 720 enables one to qualify for the most favorable interest rates for the $700000 luxury home loan.
Improving Your Credit Score
If your credit rating has been downgraded and no longer meets typical jumbo loan standards, then take action to rectify this immediately, and do not apply for a mortgage until your credit rating is back up to scratch. Here are some tips:
- Check credit reports and correct any mistakes by filing a dispute. Also, do not overlook signs of fraud or identity theft.
- Reduce the credit card balances that are used to lower the credit utilization ratio. The goal is to keep the amount of used capacity below the 30 percent mark.
- Credit card issuers are asked to increase the credit limits granted to such consumers in a bid to reduce their utilization ratio.
- Pay bills on time by establishing automatic deductions so that they do not hurt scores.
- Reduce the number of credit applications that result in hard inquiries on credit reports.
- Try to get an existing creditor to modify a limit or high-rate account to better terms.
To ensure credit reliability for a longer period, you should also make credit payments for 12 months or more to show that you are ready for a long-term commitment to the jumbo mortgage loan.
The Bottom Line
The borrower should have a FICO credit score of at least 720 to secure a luxury home loan of $700,000 with low interest rates. The higher the score the better it is rated. An Excellent 760+ score can help you get even Lower rates on jumbo mortgage financing.
Call now for expert credit repair services: (888) 803-7889
Read More:
What is a respectable credit score?
What is a decent credit score to buy a car?
What is the average American's credit score?
Can I buy a house with a 716-credit score?
