Are you looking for a mortgage to buy a house?
Having a good credit score is essential to secure a home loan but isn’t a necessity when purchasing a home.
The process is easier for those who have great credit scores but you can still buy a house with an “okay” score.
Many lenders have set a minimum credit score at which they can give out a loan.
However, the minimum credit score varies depending on the type of mortgage you want and the type of home you are purchasing.
Generally, you will be required to have a credit score of 620 to buy a house.
However, some lenders offer mortgages even at lower credit scores like 580.
Therefore, your lender and loan type play a big role in dictating the required credit score to buy a house.
What is the Credit Score Needed to Buy a House?
Your credit score while looking for a loan to buy a house will be highly affected by the type of loan you are going for.
Home loans are classified as, Conventional, Government Loans, and Non-QM.
Let’s start with conventional loans.
Conventional Credit Score Requirements
Conventional loans are not secured by the government and are a bit harder to qualify for.
Therefore, in most cases, these loans are offered to borrowers with a higher credit score and some saved money that will serve as a down payment.
A conventional loan requires a credit score of 620 and above.
If your credit score is below 620, you’ll need to look into either a government loan or a Non-QM loan product.
Government Loan Credit Score Requirements
FHA Loan –
The Federal Housing Administration insures FHA loans and is a program that is available to everyone.
FHA loans require a credit score of 580 and above with a 3.5% down payment.
Some lenders may go down to a 500 credit score, but a lower score has a higher down payment. Down payment would be 10%.
VA Loan –
If you are a veteran or eligible service member, you qualify for a VA loan.
Veterans Administration doesn’t require a credit score but lenders who finance the program do.
VA loans require minimum credit score of 580. Not all lenders will go down to a 580 score.
Non-QM Loan Credit Score Requirements
The minimum credit score for a non-QM loan is 620.
There is a down payment requirement of at least 10% but it depends on whether or not you are an investor, or purchasing a primary residence, as well as the amount of loan you need.
Credit Score is not the only thing lenders look at when buying a house
The credit score is only one aspect of the home buying process process, in addition to the credit score, lenders will also review the following:
- Have you been on-time with your credit card and loan payments within the last 12 to 24 months?
- What does your current debt load look like, and how is it spread out?
- How much experience do you have managing credit?
- Do you have any collections? How many do you have and how often?
- Have you previously filed for bankruptcy?
- Have you previously had a foreclosure or a short sale?
- Do you currently pay rent or a mortgage? Have the payments been made on time?
- Are there any outstanding judgments against you?
Regarding Deliniquent accounts on credit
Having delinquent accounts, bankruptcy, or a foreclosure will not disqualify you from getting approved for a mortgage as long as these are events from the past.
For example, you can still get a mortgage if you had a foreclosure or a bankruptcy a few years ago.
If you filed for bankruptcy yesterday, that may be an issue.
Related: Buying a House After Foreclosure
How to: Increase Credit Score to Buy a House
Lower your outstanding debt
One of the fastest ways to increase your credit score is to reduce the amount of debt (such as credit cards) you’re carrying.
If you reduce your debt responsibilities, you increase your room to accommodate more loans.
Therefore, if you have any outstanding credit cards and loan, consider paying them in full or lowering the balance to improve your credit score.
A good rule of thumb is to keep the balances on credit cards as low as possible, $0 balance would be awesome but if that isn’t option try to go for 30% or lower based on credit limit.
For example, if your credit limit is $2,000 and the balance is $1,000, this would put you at 50%.
Pay your bills on time
If you typically pay bills late, start paying them on time. 30 day lates effect the credit negatively.
On time payments will help increase your score while also showing lenders that you’re able to pay your debt obligations on time.
Get a few credit cards if you don’t have any
Without credit cards you won’t be able to build your credit up.
Get a few credit cards and keep them at $0 balances. You don’t need to use them.
As long as they are open accounts that are reporting to the credit bureau every month, your credit score should increase over time.
You’ll need to be patient, increases don’t happen overnight.
Are you ready to apply? Start the process by completing the form below.
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