When you apply for a home loan, your FICO score will help determine whether you get approved and if so, for how much.
Mortgage lenders use several tools to assess credit risk for potential borrowers, including your income-to-debt ratios, employment stability and your credit history. Your FICO score helps the lender determine how likely you are to be a credit-worthy borrower.
If you’re like most potential home buyers, you’ve probably heard this term before — and you might even know what your score is — but you may not know exactly what it means or how it’s calculated.
What Is a FICO Score & How Is it Calculated?
FICO stands for Fair Isaac Corporation, a consumer credit analytics firm that developed this scoring system. This company uses a proprietary algorithm to calculate your score, which can be anywhere from 300 to 850.
To determine your score and level of creditworthiness, the algorithm considers your history of payments, what you owe, the length of your credit history, how much new credit you have and the types (or mix) of credit you have.
Each of these factors is weighted in the calculation, with payment history and the amount owed being most important. New credit and the credit mix are the least important factors in the algorithm.
In other words, making your payments on time and minimizing your debt go a long way toward getting a strong FICO score.
What Does Your FICO Score Have to Be to Qualify for a Mortgage?
This is one of the most common questions that borrowers have when preparing to apply for a home loan. Unfortunately, there’s no hard-and-fast answer.
Mortgage underwriters look at a variety of factors, including how much money you make and how much you pay each month for expenses like credit card debt, car payments, student loans, etc. If you have a high income with few debts (known as a favorable debt-to-income ratio), you may be able to qualify for a good loan even if your FICO score is on the low side.
In addition, each type of home loan program has its own credit score requirements. For example, you may be able to qualify for an FHA loan with a 580 FICO score, depending on your other qualifications. However, a score of 600 or 620 is required for many other types of loan programs.
To determine what FICO score you need to qualify for a Utah home loan, you will need to talk to a mortgage lender about your needs and goals.
How Can You Find Out What Your FICO Score Is?
You can get your FICO score directly through the FICO site, at MyFICO.com. Be careful of imitators, however, as the internet is teeming with sites offering to provide free credit reports and credit scores. Only FICO itself provides this proprietary scoring system. The imitators (and even most legitimate banking institutions) are angling to get your personal information in an attempt to sell you something, typically a credit monitoring service.
Talking to a home loan expert is the other safe and reliable way to find out what your score is. Your lender will have to pull your tri-merge credit report anyway, as a part of the mortgage application process. Taking this approach may be preferable because you can review your credit history with your loan officer, to identify any potential inaccuracies or problems that you need to address. The sooner you can determine your score before buying a house, the better you can prepare for the process of getting a home loan.
Here at Veritas Funding, we know that knowledge is power for potential borrowers. That’s why we have created a set of helpful home loan resources and tools. These resources are free to use, to help you learn more about the process and make informed decisions for your future. Our team of experienced home loan experts is also available to answer your questions and help you learn more about your options for getting a mortgage in Orem and the surrounding communities of northern Utah.
Contact us today to learn more about your FICO score, or to apply for a mortgage or another type of home loan.