What It Means
A mortgage is a secured loan used to buy real property, with the property itself serving as collateral. If you fail to make payments, the lender can foreclose on the property. Mortgages typically have terms of 15 or 30 years and come in two main types: fixed-rate (interest rate stays the same) and adjustable-rate (ARM, where the rate changes after an initial fixed period). Your credit score significantly affects mortgage rates - a 100-point difference in score can mean tens of thousands of dollars in interest over the life of the loan. Most lenders require a minimum credit score of 620 for conventional loans, though FHA loans may accept scores as low as 580 with a 3.5% down payment.
Frequently Asked Questions
What credit score do you need for a mortgage?
Conventional loans typically require 620+. FHA loans may accept 580 with 3.5% down, or 500 with 10% down. The best rates go to borrowers with 740+ scores.
How does your credit score affect mortgage rates?
A higher credit score qualifies you for lower rates. The difference between a 640 and 760 score could mean 0.5-1.5% higher rate, costing $50,000-$100,000+ in extra interest over 30 years.