Want to know what credit score you need to buy a home?
It is natural to be concerned about your credit score and the possibility of being denied. If you want to know what credit score you need to buy a house, we hope this article is helpful.
Credit is a complex topic and many mortgage professionals that have been in the business for 10 years or more still do not fully understand the scoring models. The credit score is impacted by a number of factors like payment history, inquiries, balance to high limit ratios, and length of history. The good news is, you do not need a great credit score to buy a house.
Check out this article from Credit Karma about understanding credit
To make this long story short, the minimum score required is 580. Of course, we are always coaching our clients to increase their credit scores to get the best possible terms. With a 580 credit score it is possible to buy a home with an FHA loan. An FHA loan only requires 3.5% down and allows a borrower to finance the closing costs. To learn more about FHA loans, click here.
Although the minimum credit score is 580, other factors play a role. First, you need to have a credit history. You will need to have been paying on 3 reporting accounts for at least a year. Exceptions to this rule can be made if we can verify rental payments made on time for 12 months or alternative tradelines like a utility bill or insurance payment. If your credit score is 620 or higher, you could qualify for additional loan programs that do not require a down payment at all.
Many clients that meet with us for the first time have a score below 580 but worth our help, are able to increase their credit scores by up to 50 points. One simple trick to increasing a credit score is to pay down credit cards. I have reviewed many credit reports where the score was low only because of the balance on the credit cards. If your average credit card balance is higher than 50% of the card limits, there is a simple trick to boosting your credit score. Pay down the balance to 15% or less of the high limit. In some cases this alone can increase credit scores by 50 points.
While the minimum score is technically 580, you should not worry about reaching out to one of our mortgage consultants. We will work with you to increase your credit score and get you in to a home as soon as possible. Whether you are looking for a VA home loan, FHA home loan, USDA home loan, or a Conventional home loan, we can guide you through the applocaappl process. Our goal is to put you in the best possible position for success. Even if you currently qualify, we will do our best to help you improve your credit score.
Another factor people do not consider is the impact of paying off collections. It is natural to think paying off a collection will help your credit score but this is not always True. Some collections will actually decrease your credit score after being paid off. The reason this occurs is the date of last activity. If an older collection is paid off, the date of last activity beces more recent which can decrease your credit score. Before you decide if you should pay a collection off, be sure to get a free credit consultation before you take any action.
Most lenders require a minimum credit score of 580 to qualify for an FHA loan. With a credit score between 580 and 620 there are additional requirements that need to be considered. First, the credit report is looked at thoroughly by an underwriter to determine ifanything additional needs to be considered. Although a credit score as low as 580 is acceptable, you would typically have to wait for an underwriter to review the credit report to know if you are qualified to purchase a home. With a 580 credit score the process can be more time consuming and more paperwork will be required. Sometimes a lender can make recommendations to increase your credit score rapidly. This credit improvement will make the home buying process easier and might even lower your interest rate.
USDA Loans – 620
VA Loans – 620
Conventional Loans – 620
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