A homeowner’s credit score is essential when looking to buy a home. A good credit score will make the process easier and more affordable. The higher the credit score, the more accessible it is to borrow with lower mortgage interest rates.
Certain loan types are better for specific credit ranges. If you have a low credit score, you can try to boost it by paying your bills punctually and maintaining good credit history. Here are all you need to know to be like those home buying experts.
Credit Score Needed Per Loan
For starters, a credit score ranges from 300 to 850, which indicates your creditworthiness to lenders when you borrow from them.
The higher this figure, the more lenders will want to work with you since you are responsible and dependable according to your financial records. Higher credit scores are considered more favorable, but getting a mortgage with less-than-ideal credit is still possible. This all depends on the mortgage type you intend to get.
Take note that conventional and government-backed loans have different credit score requirements, so here’s the breakdown per loan type:
- Conventional: These mortgages aren’t guaranteed or backed by a government program. They’re best suited to borrowers with higher credit scores and money saved up for a down payment.
Your score must be 620 or above when applying for a conventional loan. If it is below 620, lenders either won’t approve your loan or let you borrow with higher interest rates for their security, which can result in higher monthly payments on your end.
- FHA: If you have a lower credit score or don’t have much cash saved up for a down payment, consider getting an FHA loan, which the Federal Housing Administration insures. The minimum score for an FHA loan is usually 580. But much like conventional mortgages, a higher credit score may still help you qualify for a better FHA mortgage rate.
- USDA: If you prefer living in a rural or suburban area that the government has designated as eligible for this type of loan, and your income is below 115 percent of the median income for that area, you may qualify for a USDA loan. Home buying experts will tell you that most lenders require a minimum credit score of 640 for these loans.
- VA: A government-backed VA loan might be an option for you if you’re a veteran, qualified service member, or partner. There’s no industry-set minimum credit score to borrow, but some require a credit score of at least 580 for a VA loan.
Bonus: Improve Your Credit Score These Ways
- Way #1: Paying off any outstanding debt is one of the best ways to improve your credit score. This is helpful for a couple of reasons. First, if your overall debt load goes down, you can afford to take on more debt, making you less of a financial risk in the eyes of lenders.
- Way #2: When a lender evaluates your credit, one of the things they look at is your history of paying bills. This includes all types of bills—not just auto loans or mortgages— but also utility bills and cell phone bills.
Own Your Dream Home Through BuyHouseEZ
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