The importance of your credit score when buying a house cannot be overstated. A high credit score means you’ll get a lower mortgage interest rate, which will save you money in the long run. So if you’re thinking of buying a house, make sure to check your credit score and work on improving it if necessary.
Are you looking for expert tips on how to raise your score? The best place to start is with a great lender who can advise you on the best place to make changes. Most of the time, there’s no need to involve a credit repair company or other service that will cost money. Even if you have a good score, lenders base rates on credit score tiers so raising your score even by the slightest amount may get you a lower mortgage rate.
What Score Will Qualify You?
The three credit bureaus that calculate your FICO® Score—Experian, Equifax, and TransUnion—use different methods to come up with your score. So, even if two of the bureaus have the same score for you, the third bureau could have a different number. This is why it’s important to check your credit report from all three bureaus.
The average credit score for a mortgage would be higher if your co-borrower had a score of 720 instead of 580. This can make a big difference in qualifying for a mortgage.
The lowest median score is used to determine your rate and mortgage insurance. In some cases, Fannie Mae still uses the lowest middle score for qualification. Speak with a Home Loan Expert to find out more.
Loan Credit Requirements
Conventional loans are a great fit for borrowers who have a strong credit history and some money saved up for a down payment. If your credit score is below 620, you may have difficulty getting a conventional loan approved. However, many lenders will still consider your application if you can offer a larger down payment.
USDA loans are available to borrowers who want to purchase a home in a rural or suburban area. The borrowers must have an income that falls below 115% of the area’s median income, and most lenders require a minimum credit score of 640 for USDA loans.
If you’re looking for a loan that has a lower credit score requirement, or if you don’t have a lot of cash saved up for a down payment, an FHA loan might be a good option for you. These loans are insured by the Federal Housing Administration, and the minimum credit score required for an FHA loan is usually 580. However, having a higher credit score may still help you qualify for a better interest rate on your FHA mortgage.
If you’re a veteran or qualified servicemember or spouse, a government-backed VA loan might be an option for you. There’s no industry-set minimum credit score to buy a house, but a score of 580 or higher is recommended.
Understanding Your Credit and Its Impact
You should check your credit report at least once a year for any mistakes and report them to the credit reporting agency as soon as you find them. Your credit score is an important part of your financial life, and any mistake on your credit report could lower it. You’re entitled to a free credit report from all three major credit reporting agencies once a year.
When you know your score, you can decide which loan option is best for you- conventional or government-backed. Then, when you’re ready, you can apply for a mortgage.
Ways to increase your score
Paying off your outstanding debt is one of the best ways to increase your credit score. This is helpful for a couple of reasons. First, if your overall debt responsibilities go down, then you have room to take more on, which makes you less risky in your lender’s eyes. Second, by paying off your debt, you can improve your credit utilization ratio, which is another factor that lenders look at when assessing your creditworthiness.
A lender evaluates your credit to see how reliably you can pay your bills. This includes all bills, not just auto loans or mortgages – utility bills and cell phone bills matter, too.
Bringing it all together
Different types of mortgage loans have different credit score requirements. However, the higher your credit score is, the easier it will be to get a great mortgage loan. It is important to stay on top of your score and check your credit report regularly.
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