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How a low credit score impacts mortgage eligibility

If you are on the market for your first home, you are probably getting a crash course in personal finance and how your financial status ultimately impacts your ability to secure a loan. Among the many factors a potential mortgage broker will look at when determining whether to extend you a loan is your credit score, which gives them an idea of how likely you are to pay back money owed.

While the decision of whether to extend you a loan will depend on your credit score in combination with other key factors, there are certain minimum guidelines you must typically meet.

Suggested minimum credit scores

Generally speaking, you want your credit score to be above 620 if you hope to secure a conventional, non-Federal Housing Administration-backed loan. If you pursue an FHA loan, you still want your score to be somewhere above about 580. If you are a veteran, you may not need a specific minimum credit score, although some companies are unlikely to loan to you even as a veteran if your score falls too far outside the aforementioned numbers.  

Additional considerations

While a low credit score may hinder your ability to secure a loan or obtain a loan of a certain amount, it also ultimately impacts your interest rate. You are likely to receive a more favorable interest rate the higher your credit score is and vice versa, and the difference can translate to tens of thousands of dollars in the long run.

Even if your credit score is on the lower side, do not assume this automatically eliminates any chances of getting a mortgage loan. You still may be able to do so, and this is particularly true if you have only minimal debt and are able to furnish proof that you make a good living. For more about how to manage finances and eliminate credit-damaging debt, consider speaking with an attorney. 

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