When considering a loan application, lenders look at your overall debt load, your work history, and your FICO score (among other things). The higher your FICO score, the better your chances of qualifying for a lower interest rate. That saves you thousands of dollars over the life of the loan. A higher credit score opens up more options for the type of loan you qualify for as well.

Your credit score affects your Tucson home buying options. The higher your score, the lower your monthly payment. So, get your FICO score in its best shape before you apply for a home loan.

How Your Credit Score Affects Your Home Buying Options

Minimum Requirements

Search Tucson homes for saleConventional Loan - Minimum Score: 620. Freddie Mac and Fannie Mae back conventional loans up to $510,400 here in Arizona as of January 1st, 2020. These are called "conforming" conventional loans. As home values increase, this amount may go up in the future as well. A fixed-rate conventional loan is the most common mortgage loan in the market right now. Three out of every four home buyers utilize this as their loan of choice. 

Jumbo Loan - Minimum Score: None, but lenders usually require at least a 680 credit score. If you want to buy a home for more than the maximum amount backed by Freddie Mac or Fannie Mae, then you'd need to apply for a jumbo loan. These are called non-conforming loans. However, most Tucson home buyers utilize conforming conventional or FHA loans.

FHA Loan - Minimum Score: 500 (10% down) or 580 (3.5% down). Homebuyers with less to put down and/or a less than desirable credit score sometimes opt for an FHA loan. The drawback of this over a conventional loan is that you pay for two mortgage insurance premiums. One gets paid upfront with your closing costs. The other, PMI, sticks with you for the life of the loan as an additional cost. With conventional loans, you can eliminate the PMI when your equity reaches 20% of your home's value.

VA Loan - Minimum Score: None, but lenders usually require at least a 620 credit score. Current and former military members can purchase a Tucson home with no money down. While, technically, there is no minimum credit score required, lenders usually want to see at least a FICO score of 620. They also need to see the ability to pay the mortgage.

Interest Rate and Your Credit Score

Your FICO score helps determine what interest rate you qualify for. According to Bank of America, the interest rate for a 30-year fixed-rate mortgage is 2.875%. But that's only if your score falls in the "very good" range (740+). You pay more when your credit falls below. The higher your interest rate, the higher your mortgage payment. So, while you may still qualify with a 620 (or even lower with an FHA loan), you could end up paying tens of thousands of dollars more in interest. Therefore, before you apply for a loan, make sure you get your credit in the best shape possible.

Rebecca Schulte, Schulte Real Estate Group, Your Source for Tucson Real Estate