What Should Your Credit Score Be to Buy a House?

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What Should Your Credit Score Be to Buy a House?

Written By: Ashley Sutphin
Friday, October 23, 2020

What credit score do you need to get a home loan? While specifically, it can vary, there are certain things you should know before you apply for a mortgage to ensure youve put yourself in the best possible financial position.

Factors Impacting Your Credit Score

Before you explore specific loans, pull your credit report. You can look for errors that may need to be corrected and get a better idea of what you can do to improve it.

The factors that play a role in your credit score include:

Payment history: This is the main factor of a credit score, making up about 35 of your score. Your payment history is simply whether you pay your bills on time or not. Any creditors you have will report your activity every month to major credit bureaus. One or two late payments probably wont have a big impact, but a pattern of late payments will.
Debt: The amount of debt you owe across the board makes up around 30 of your score. Debt is also called your credit utilization ratio, and it looks at how much debt youre using versus whats available to you.
Credit age: Making up around 15 of your score is credit age. The longer you have accounts on your credit history the better, as long as theyre in good standing. If you have old accounts, keep them open if possible because this will affect your average credit age.

Other factors that are >

Your credit score is important not only because it determines whether you get financing for a home, but also the interest rate youre offered.

The following are typical ranges for credit scores:

Anything below 580 is considered very poor A fair score is one ranging from 580 to 669
A good credit score might range from 670 to 739
An excellent score is between 740 and 799
Anything 800 and above is considered exceptional

Conventional Loans

If youre applying for a conventional loan from a bank or a similar type of lender, you will usually need at least a 620 to qualify.

Conventional home loans follow Freddie Mac and Fannie Maes standards.

While 620 is the minimum, having that score doesnt mean youll be approved for a home loan. An excellent score is usually considered 740 and above, and with an excellent score youll likely not only qualify for a conventional home loan but youll also get a competitive interest rate and you may have a lower down payment requirement.

VA Loans

The U.S. Department of Veterans Affairs insures VA loans. Theyre available to certain servicemembers and veterans of the U.S. Military, as well as spouses of military members who died while on active duty.

The minimum credit score for a VA loan is likely to be around 620, although this can vary, and theres no set minimum score.

FHA Loans

Insured by the Federal Housing Administration, FHA loans are less risky for lenders so you may find its easier to qualify. The minimum score for an FHA loan with a down payment of 3.5 is 580. If youre paying at least 10 for your down payment, theres no minimum required credit score.

If you have an FHA loan originated by a private lender, each will have its own minimum requirement for credit scores.

Other Factors Lenders Consider

Yes, your credit score determines whether your quality for a home loan and also what your interest rate will be, but other factors are >

Lenders will look at your income to ensure that you can afford your mortgage payments if you get a loan. Theyll also look at your existing debt in comparison to your income.

The more of a down payment you can make, the more likely youll qualify for a lower interest rate.

Lenders also want to know if you have savings if your income ends for a period of time. You should be able to show that you have enough money saved to cover at least two months of your mortgage payments.

Finally, employment history is >

If you have a low credit score, you could potentially still get a loan, but youre a riskier borrower.nbsp; Youll have to offset that risk, which means youll have to have a larger down payment, and youre also going to pay a higher interest rate.





Copyright© 2020 Realty Times®. All Rights Reserved

Updated: Monday, October 26, 2020

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