Every person looks forward to buying a home. You need to prepare for homebuying and credit scores are one of the many factors you should understand. Credit scores are a measure of a person’s ability to repay the loan amount. It takes into account factors such as loan repayment history and credit term and ranges from 300 to 900.

How does it affect the process of homebuying?

The banks will evaluate your credit score when you apply for a home loan. This is to determine if you are responsible borrower. Higher credit scores, which range from 750 to 900, are considered good value. They can offer you many benefits, such as faster loan approvals and lower interest rates. Before you apply for a loan, it is crucial to have a healthy credit score. Your credit score will improve if you pay your credit card and other bills on time.

Let’s now discuss the major aspects that your credit score will affect.

Approval of loans:

Your credit score can also play a role in getting a loan approved. A minimum credit score of 620 to 650 is necessary in order to obtain a loan for your home. It is better to get in touch with your bank to discuss ways to improve your credit score.

Maximum Loan Amount:

A low credit score can mean that the loan amount you receive will be lower than what you requested. If you require a home loan of Rs. 30 lakhs, it may not be approved by a bank if you have a lower credit score. You should strive for higher credit scores in order to be eligible for higher loan amounts.

Applicable Rate of Interest:

Your credit score can also impact the loan interest rate. Lenders will offer lower interest rates to those with higher credit scores. Although the rate difference will not be significant, it will result in a significant decrease in your monthly EMI.

Down payment:

A lower credit score could result in a higher down payment to buy a home. This is done to make sure that the buyer is serious about loan repayment. The lender might ask you to pay 20% outright rather than usual 10% down payment.

We hope you now have a better understanding of your credit score and how it affects home buying. A higher credit score can lead to attractive loan offers, lower interest rates, longer repayment terms, and higher loan amounts. You can improve your credit score by making all payments on time over the next few months. It is important to monitor your credit score regularly to see if it has improved.

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