A Robust Financial Reputation, Often Reflected in Your Credit Score, is Critical When Seeking Loans Like the Ones Required to Buy a House in Ocean or Monmouth County, New Jersey
Buying a home in New Jersey can seem like an uphill battle. The average price of a home is $428,890. In the past three years, housing prices have augmented by 16%, and the market shows no signs of stopping. There are more buyers than houses within their price range, allowing mortgage companies to be choosier about who qualifies and what interest rate the buyer will receive.
A credit score is a measurement of how fiscally responsible a person is. It provides lenders with an objective, statistical way of evaluating the likelihood that a person will pay the amount owed. It ranges from 350 to 850 and is often referred to as a FICO score (named after the model used to calculate it). Anything below 600 is considered very high risk for lenders, while a score of 601 to 649 is considered high risk. A FICO score of 650-699 indicates some risk and a score of 700 to 750 is low risk. A score of 750 to 850 is considered shallow risk.
Breaking Down the Compilation of a Credit Score in NJ
A credit score is a compilation of different factors related to a person’s fiscal responsibility. Payment history of utilities, credit cards, and loans make up 35% of the score. Various types of accounts, such as savings, money market, investment, and retirement accounts, are examined and given a percentage of 10%. If you have several inquiries regarding your credit, such as applying for a car loan, new credit cards, or some other new line of credit, 10% of your credit score goes to that. The inquiries will stay on your record for two years even if the credit is not obtained. The length of your credit history is 15% of your score. It is valuable to show an ability to manage credit properly without late payments or past-due accounts. Outstanding balances are assigned 30% of your credit score. An outstanding balance is how much credit you have available from the credit cards or loans you are currently paying. Revolving credit is accounts such as credit cards, while installment credit is loans. For example, if you have two credit cards with a $4,000 limit and purchases totaling $1,000, you still have plenty of available credit. A student loan will lower your available income but is an example of your willingness to pay debts on time. However, you may have a lower FICO score if you only have $500 of available credit, even if you pay your bills on time because you use most of your available credit.
Average Minimum Credit Score Required for a Mortgage
The average minimum score for a mortgage is 620. Depending on the type of loan you are applying for, you may need a higher score, while others have lower requirements. Your credit score is valuable, but it is possible to work with the score you have to find the home you have always wanted.
Impact of Credit Score on Eligibility for a Home Loan
If you want a mortgage, your lender will use your credit score to see how well you handle your money and debts. It reflects you as a borrower, but the score doesn’t paint the whole picture. Those factors won’t necessarily act to your detriment if you use cash or have a limited credit history due to age. Your credit score is necessary but not the only tool used to measure your capacity as a borrower. That is why lenders use your credit history and credit score. A good credit history can make a difference even if your score is not so great.
Lower Interest Rates and Potential Savings, the Advantages of a High Credit Score
A higher score gives the mortgage lender confidence in your ability to pay promptly, which means a lower interest rate. The higher your credit score, the lower the lender’s risk. Some lenders will reduce the down payment if your score is good. That means significant savings for people whose credit scores are higher. For example, if you obtain a mortgage for $200,000 on a 30-year loan, and your FICO score is 760 to 850, your APR may be 6.71%, which means a monthly payment of $1,297. If your score is 640 to 670, your APR could be 7.81%, with a monthly cost of $1,485. Keeping in mind that the average cost of a house in New Jersey is over $400,000, a one-point difference in your interest rate can significantly affect your monthly payment.
NJ Special Loan Programs and Their Requirements
Some types of loans available under certain circ*mstances could make obtaining a home more accessible. The Federal Housing Administration (FHA) offers loans requiring a down payment of 3.5% to borrowers with a minimum credit score of 620. Your income-to-debt ratio must be 43% or less. The FHA doesn’t make the loan, but they guarantee the lender will be repaid in the case of default. Application requirements include a history of steady employment of no less than two years and proof that monthly bills and other credit (such as student loans) are paid on time. Also, you cannot have bankruptcies in the last two years; the home must be your primary residence.
The Department of Veterans Affairs (VA) offers servicemembers and veterans programs tailored for home buyers. As with the FHA programs, the VA doesn’t hold the loan but guarantees that the lender will be paid. The lender can apply the standard requirements such as employment and credit history. The VHA will provide the applicant with a COE or Certificate of Eligibility, given to active-duty members who have served at least 90 consecutive days or veterans who retired or were honorably discharged.
The U.S. Department of Agriculture (USDA) offers low-interest mortgages to applicants who are legal permanent residents, have a credit score of 640 or higher, can demonstrate 12 months of responsible economic practices, and have a household income that is 115% or less than the area median income. The residence must be in a qualified rural area established by the USDA.
Jumbo loans are for those whose mortgages exceed the FHA limits. Properties valued at more than $766,550 require a down payment of 10% to 20% and a high credit score (above 720) and are not available with every mortgage lender.
Key Considerations Beyond Price When Purchasing a Home in NJ
Price is always the first thing people consider when looking for a house. Calculating the monthly payment for your mortgage will give you an idea of how much you will need to budget, but the down payment, yearly property taxes, maintenance, homeowner’s insurance, and closing costs must be factored in as well.
The location requires scrutiny. You should research the crime rates, quality of the schools, areas of high traffic during your commute, and access to public transportation. HOAs can limit design changes, such as the color you choose to paint your house, the adornments on your lawn, and many other regulations. They also require monthly payments, so add that to your household expenses. Community perks such as public pools, parks, and walking trails are also worth looking into.
Although an unpleasant topic, but still crucial to your family’s safety is the state sex offender registry, byinserting the address of your home, school, or office, this registry will show whether there are sex offenders residing in your area.
Strategies for Improving Your Credit Score
Paying your bills on time can help your score. Using your credit cards to create a credit history is important, but you can pay the balance off each month to avoid interest from accruing. You should avoid having a credit utilization percentage higher than one-third of your income. Don’t close old credit card accounts because it lowers the amount of credit you have available. Use them occasionally to prevent the credit card company from closing your account. Having a car loan and student loans isn’t a hindrance if you pay them on time and they don’t take up too much of your monthly budget. Stave off the temptation to buy a new car if you want to buy a house within two years. Recently obtained credit can cause some lenders to be concerned if your payments are high.
How Can our Real Estate Attorneys Help You Secure the House You Want in New Jersey?
At Bronzino Law Firm, our real estate attorneys will guide you through obtaining the home you have always wanted from beginning to closing. Buying a home is probably one of the most critical moments in your life and should be an exciting time for you and your family. Buying a house requires many steps and, if not followed precisely, can end in disaster. We will personalize our advice for you, allowing you to feel confident about the purchasing process. By protecting your financial and legal interests, you can avoid the mistakes and headaches frequently experienced by buyers who try to do it on their own.
If you are considering buying a home, contact us at (732) 812-3102 or use our contact form to get started on the path to home ownership. We look forward to making your dream a reality in Colts Neck, Marlboro, Long Branch, Mantoloking, Neptune, Red Bank, Middletown, and other Ocean and Monmouth County towns.
