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Credit and Home Buying - Like Peas and Carrots

by Brandon Cornett

In the classic film Forrest Gump, Tom Hank's character said that "Jenny and me was like peas and carrots," referring to how inseparable they were when growing up in Greenbow, Alabama.

Borrowing that analogy from Forrest, home buying and credit scores are like peas and carrots too. The two concepts are inseparable, so anyone planning to buy a home in the near future must understand the importance of credit.

The Credit and Mortgage Connection

For most people, purchasing a home means taking out a mortgage loan to pay for it. Unless, of course, you've just inherited a fortune from Uncle Ernie, won the lottery, or invested in Apple Computers stock back in the 1980's. If you fall into one of those categories, count yourself lucky.

But for the rest of us "average folks," buying a new home is only possible through the use of a mortgage loan. And this is where credit comes into the picture.

To obtain a home loan, you must have a credit history behind you (and ideally a good one). Lenders will review your financial background to "weigh" you in terms of risk:

  • If you have a history of being financially responsible, then you'll have a higher credit score and will be more likely to get a good interest rate on your home loan. You are a low-risk borrower for the lender.
  • On the other hand, if you have a history of missing bill payments, carrying too much debt, or similar examples of bad financial management, you will have a lower credit score. In this scenario, it will be harder to obtain a loan for home buying purposes, and even if you do you'll pay a higher interest rate on the loan.

The two points outlined above have always been true. But good credit is even more important for home buyers today, due to tighter regulations on the lending industry. So let's talk about the things you can do to maintain a higher score:

Credit Score Needed to Buy a Home

What kind of score do you need for home buying in today's economy? Well, this will partly depend on the lender you choose. But suffice to say that a better score will certainly make your home buying process a lot easier. Not only will you have an easier time qualifying for a loan, but you'll also qualify for a better interest rate on that loan. This translates into money saved each month!

The average credit score in the United States currently falls between 650 and 700, depending on whom you ask. Higher is always better. According to experts, a score of 720 or above is ideal for home buying purposes because it will ensure that (A) you get qualified for a mortgage loan in the first place and (B) you get a good interest rate on the loan.

Carrots and Peas ... Like Never Before

Good credit is more important for home buyers today than it was in the past. That's because in the past, there were plenty of subprime lenders willing to offer home loans to borrowers with bad credit scores. Of course, they would charge them astronomically high interest rates on the loans, which is partly what led to the mortgage crisis of 2007 - 2008.

As a direct result of that crisis, there are very few subprime lenders around anymore. That particular business model is simply not viable anymore. So while there were plenty of subprime (bad credit) mortgages in the past, they simply aren't around anymore.

About the Author: Brandon Cornett publishes a website full of mortgage loan advice as well as several other websites for consumers. Visit the author online at

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