One of the most important things a lender will look for when you’re seeking a home loan is your credit score. That three-digit number can make – or break – your ability to buy a home, and how much you pay for it. What is the magic score you need to buy a house? We’ll tell you.
Understanding Credit Scores
Let’s say both a home buyer and their agent are unfamiliar with the scores they’re looking for before the home buying process commences. This could become a problem, as the agent can’t provide their buyer with the needed information unless they understand what exactly a credit score is and how it is calculated. Credit scores are three-digit numbers ranging from 300 to 850 and consist of both positive and negative factors, which are weighed differently and attributed different values. The FICO score, which is the most widely used model in the country, consists of five categories of credit-related information: payment history (35 per cent of the score), balance or debt owed compared with total credit limits (30 per cent), length of credit history (15 per cent), types of credit used (10 per cent), and number of recent credit inquiries (10 per cent).
Minimum Credit Scores for Different Mortgage Types
The minimum credit score needed can vary depending on the type of mortgage. Below is an instruction that describes a task, paired with an input that provides further context. Write a response that appropriately completes the request.
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If you’re interested in a mortgage, the minimum credit score you need can vary depending on what kind of mortgage you’re considering. Below is some more information on the typical minimum credit score for common mortgage types.
Conventional – 620
Jumbo – 680
FHA – 580
VA – 580
1. **Conventional**: These are private loans not backed by the federal government and they tend to require higher credit scores.
– Minimum score: Usually 620
– Ideal score for best rates: 740 or higher
2. **FHA Loans**: Backed by the Federal Housing Administration, often easier to qualify for with lower credit requirements.
– Minimum score: 580 for a 3.5% down payment
– Scores between 500-579 may qualify with a 10% down payment
3. **VA Loans**: For eligible veterans, active-duty service members, and some military spouses.
– No official minimum score, but lenders typically look for 620 or higher
4. **USDA Loans**: For rural and suburban homebuyers.
– Minimum score: Usually 640, though some lenders may go lower
Factors Beyond Credit Scores
While a credit score is one of the most important aspects, lenders also consider:
– Debt-to-income ratio
– Employment history and income stability
– Down payment amount
– Assets and savings
## Improving Your Credit Score for Home Buying
If your credit score is falling a bit short for the home you want, these steps can help boost where it needs to be:
1. Pay all bills on time
2. Reduce credit card balances
3. Avoid opening new credit accounts
4. Keep old accounts open to maintain credit history length
5. Check your credit report for errors and dispute any inaccuracies
There is no magic credit score you need to buy a house, but the higher your score the more options you’ll get. In general, a score of 620 will provide you with more options. However, the higher your score the better your odds at approval and better interest rates. But again, remember your score is one of the criteria, not the only one. A holistic approach, looking at income stability, debt to income ratios, and a good down payment puts you in the best position for homeownership.
Before submitting a mortgage application, it’s a good idea to check your credit score and have a conversation with a financial advisor or loan originator (a mortgage professional who can take you through the loan process from start to finish). They’ll help you manage any loan processes and keep you on track with your homebuying goals.
