What Credit Score is Needed to Buy a House?

Published: December 21, 2019
By Mark Jorel Snow

If you are planning to buy or mortgage a house, then you should check your credit score. You will have to know your credit score. It is a good idea and you should get this idea for so many reasons. This score plays a major role in order to buy house. It is not only essential for the initial qualifications for a loan but the score also influences the down payment structure. Credit score can also determine the factors such as interest rate and other related costs that you need to pay in order to obtain a mortgage loan. You will have to know that a good credit score is needed to buy a house. It also depends on the types of mortgage loans. You will have to learn about the needed score and improve the credit in order to submit a mortgage application.

What is the minimum credit score?

There are several types of mortgage loans available in the market. Each mortgage loan needs minimum amount of credit score. Some lenders have strict criterion in order to determine the creditworthiness. If you are planning to get a mortgage loan to buy a house, then you will have to put your credit score under the scrutiny. Lenders will check your credit history and other related financial histories. After that they will determine your qualification for the mortgage loan. If you have a bad score, then the lenders consider it as a risky investment. But you will have to find out the minimum amount of score in order to buy house.

Here are so many types of loans that you can apply for:

1. Conventional loans:

These types of loans are called as conforming’ mortgages. These types of loans are conformed to the guidelines. This is not at all a direct Government agency. This is a government sponsored agency established by the two entities Fannie Mae and Freddie Mac. These two are Government sponsored enterprises. They actually buy mortgages from the different lenders and sell them to the investors as well. They make mortgages widely available. These all types of conforming mortgages are known as conventional mortgages or loans. In these types of loans, you will have to need the minimum credit score of 620. But for some cases, people need to obtain the higher score of 660 or higher than that. In this case, the lenders can set their own guidelines. These loans have some features that other loans do not have. The borrowers with low credit score are called subprime mortgages. In that case, they have to pay the high interest rates.

2. Jumbo loans:

This type of loan is also known as jumbo mortgage. It is not like the conventional loans. This loan is not eligible to buy, guaranteed and scrutinized as well. This loan is designed to finance the various luxurious properties and houses in the fully competitive real estate market in the world. This type of loan is used to finance the properties or houses that are too much expensive. These properties or homes do not fall under the conventional loans. The actual value of jumbo loans is varied from state to state even countries. This may need the credit score of 700 or higher than that. Sometimes, people need to obtain the score of 720 in order to qualify the jumbo loans. This type of loan is available with a fixed rate of interest or an adjustable rate of interest as well.

3. FHA loans:

FHA loans are known as Federal Housing Administration Loans. This type of loan needs to have minimum score of 500. You need to make 10% down payment in this case. But if you have the score of 580, then you will have to make 3.5% down payment. This type of loan is designed for the low income borrowers. You cannot lend money for mortgage from FDA directly. They do not lend you money for loan. You need to take loan from the Federal approved organization such as banks. FHA guarantees loan. In this loan type, you will have to pay two different types of insurance premiums. These two types are such as Upfront Mortgage Insurance Premium and Annual MIP. This type of loan is perfect for lower income borrowers who have lower credit score in general. It needs lower down payments and score than the conventional loans.

4. VA loans:

This type of loan is established by United States Department of Veterans Affairs. This loan is created for some selected members of the military community. This is also applicable for their spouses and eligible beneficiaries as well. This type of loan sets a qualifying standard for the lenders and also dictates the term, rules and regulations for them. This type of loan is mainly provided by the private lenders such as banks and other mortgage companies or agencies. This loan also determines the guaranteed benefits and housing related programs as well. This loan can help a qualified veteran to buy house. VA loans also provides with an offer up to 100% financing based on the value of the house. This type of loan can give you so many benefits such as it does not mandate the down payment by the lender. In this case, the closing price is limited and paid by the seller.

5. USDA loans:

This type of loan is insured by the U.S Department of Agriculture. This type of loan is a zero down payment mortgage and it is eligible for the rural and suburban home buyers. This is one of the beneficial mortgage programs for the moderate income home buyers who are looking to buy homes in the rural areas. You need to qualify the minimum 580 score. But if you want, you can go lower in some cases. So, this is one of the flexible loan structures in the world. If you put little or no money for down payment, then you will have to pay the amount of mortgage insurance premium. If you have a low income, then it is the perfect loan structure for you. You can apply for this loan with your low income category. You will have to qualify the U.S citizenship or the permanent residency as well. You will have to acquire a dependable income. It can issue direct loans for the homes around 2000 square feet and or less than that.

What is a good credit score needed to buy a house?

This is a varying detail from lender to lender. But you should know the good FICO score which is varied in between 670 to 739. If you fall under this particular range or higher than that then you are considered to be in a good position in order to buy house. In this way, you can get the most favorable interest rate and loan for the mortgage as well. The borrowers should remember one thing that qualifying and required credit score and other related factors such as debt amount, cash reserves or other assets can affect their ability for a loan structure.

Credit check is required in these steps:

You will have to remember these things. These all are very much important while you are planning to apply for a mortgage. The lenders will also check these matters as well:

You will have to clear the tax returns for the previous two consecutive years.
The saved amounts in the banks and investment accounts.
If you hold a business or an owner of a business, then it is important to check the profit or loss of that particular business.
The ratio of your debt-to-income.
Your total employment history and other details as well.
Details of your down payment.
Past bad credit histories including delinquencies and bankruptcies.

Why credit score is important for a home loan?

It is very much important to understand your credit score in order to buy house. You will have to understand the benefits of it. These advantages are such as follows:

Works as bargaining tool: It is one kind of eligible parameters for your loan structure. You can also use this in order to get the favorable deal from the banks. Most of the banks are looking for reliable borrowers, so, they do not miss a chance to give you an enough amount of loan.

Obtain a low interest loan: Your score can give you the low interest loan. It can also lessen your financial burden. If you have the good score of credit, then you can enjoy the low interest loan as well.

Better insurance deals: If you find a better insurance deal, then your good score of credit will be beneficial for you. You can enjoy the great insurance deal with the low premiums as well.

How to improve the bad credit score?

If you have bad score of credit, then there are so many ways that you can improve it. You can improve your creditworthiness and buy house. You can also increase your score as well. You will have to take a look at your financial habits and see where you can make it better improvement. You will have to pay your bills on time if you really want to improve your score. In this way, you can also limit your hard inquiries against your credit. You should also have to review your credit histories and remove the errors from it in future. If you can improve your score then you can eligible for a better interest rate as well. You will also make yourself available for the subprime rate.

Can you get a home loan with a bad credit score?

But what do you need to do if you have a bad score? It is also possible to get the home loan to buy house with a poor score. Here are some tips that you should follow:

You will have to consider applying for a FHA loan. In this loan, you can get a score as low as 500. You will need 10% down payment in this case.
You will have to make sure that you can pay the large amount of down payment. With that you will also have to obtain a good amount of cash reserves.
You will have to work hard in order to pay all the down debt amounts. In this way, you can reduce your DTI.
You will have to arrange someone with good and exceptional score in order to apply with you as a co-signer.

Some more home buying tips:

Before choosing a lender and obtain a better and prequalified mortgage house loan, you will have to check all your needed documents in order to begin the process and proceed towards the right path.

Gather the required documents: If you are planning to buy house, then you should gather all your needed documents. The lender will ask you for the financial records and documents as well. You will have to get organized before going into more detail. You will have to collect all the needed documents such as tax returns, bank statements and pay stubs. You should gather it all and ready to go for the detailed procedure.

Use a co-signer: If you have a bad score of credit and you still want to buy a house, then you should arrange a co-signer with good score of credit. You will have to access the decent mortgage rate in this way. Their good score can increase the chance of your quick loan approval.

Think more than the mere loan terms:

It is a financial commitment for you. It is obvious that a good credit score needed to buy a house. So, you will have to be serious about this. You cannot take it for granted. It is a big commitment as you can see. If you live in an area where the mortgage amount is cheaper than the rent of your house, then you should go forward it. If you work hard in order to improve your score, then you may able to refinance your loan structure and seek better deal as well.