Home Loans and Credit Scores

Home loans generally require the highest credit scores of all loan options. The reason for this high standard is the size of a mortgage. Mortgage loans tend to be several hundreds of thousands of dollars and last 20 years or more. As a result, a mortgage lender will work with only the most qualified buyers. To determine eligibility, mortgage lenders consider the following factors:

  • Length of credit history--The longer your credit history, the better. Even a good score can mean little if the history is short.
  • Types of previous loans--Lenders like to work with borrowers who have a record of paying off large installment loans, such as car debts and student debts.
  • Total current debt--Even a qualified borrower may scare off a lender if he or she has too much debt currently. Total debt is considered relative to your income and net worth. Aim to keep your debt under 20 percent of your total net worth and your payments under 10 percent of your monthly income prior to seeking a mortgage.
  • Percentage of credit being used--Lenders like to see that you have plenty of wiggle room on your credit lines. Keep your balances under 10 percent while you are seeking a home loan.