It's surprising how variations in three little numbers can change almost everything about buying a home. Your credit score, depending on where it falls on the continuum, can magically affect several areas of home-buying, from your search parameters to your monthly payment. To find out more about why that is, read on.

What Credit Score Do You Need?

You might already realize that the higher your score, the better, but you might not know why that is. Conventional lenders can change what they consider an excellent score at any time and you may have a difficult time figuring out where the cut-off is for a given score. In general, conventional loan bankers expect a score of about 620, with 740 and up considered excellent. Government-backed loans are not as difficult to decipher, though. You can generally find out what minimum score is necessary pretty easily if you are considering an FHA (Federal Housing Administration), VA (Veterans Administration), or USDA (United States Department of Agriculture) loan by speaking with a lender that handles those programs.

How Credit Scores Affect Your Home-Buying Experience

The main issue with your credit score is the interest rate. Higher interest rates can be charged by lenders dealing with those who are seen as more of a credit risk. That allows the lender to make money on what they might see as a riskier choice. Those with higher scores can qualify for cheaper loans because the lender sees them as long-term customers who will continue to make good on their loans. It can be surprising how a mere percentage of an interest rate point can affect the total you pay for a loan over its life. Lower interest rates can save borrowers thousands over those saddled with high interest rates.

The interest rate goes on to affect other things. As the interest rate rises, so does the monthly payment needed by the buyer. Buyers are approved, in part, based on their monthly budget. Lenders look at all of the bills to find out how much of their income is going towards housing. If you have a lot of other bills, a higher interest rate will mean you can only afford to pay so much each month. That means you won't be looking at a home above that price range.

You can become a homeowner no matter what your credit situation. Ask your local mortgage lender for help in determining what type of loan best suits your situation.

To learn more, reach out to a mortgage loan service.