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A Roadmap To Improving A Credit Score To Buy Your Dream House

Credit Score Need to Buy a House

Are you planning to buy your house? Before beginning your home search, explore loan options, and more you will need a good credit score need to buy a house. While every lender will have different credit requirements for each type, remember to maintain your credit score mortgage between 600-700 to be eligible for varied loan options and benefit from low interests. 

A mortgage is considered the biggest loan that you will take in your lifetime. So having a good credit score to buy a house is one of the major eligibility criteria for all lenders. But if you have a higher credit score you will open your options to get access to more loan options with varied mortgage benefits. 

Remember, that every lender will have different credit score requirements varying from loan type. For instance, conventional loans will have a higher credit score requirement than government-backed loans insured by the Federal Housing Administration. Whether you have a higher credit score mortgage or an average score this blog will guide you to the factors you must expect while applying for loans. 

Are you excited to learn more about Fico's credit score for loans? Stay with us, we will outline a few factors that are vital in qualifying for varied loan types. Also, here you will find accurate answers to your concerns like what's a good credit score to buy a house? What credit score do you need to buy a house and more?

What Credit Score Do You Need to Buy a House?

While preparing for buying your own house, you will have concerns like what credit score you need to buy a house. For most loans, the requirement for a credit score is at least 620. Whether you have a lower score or meet with minimum FICO score criteria, your focus should always be on maintaining these scores as it will improve your chances to get approval from varied loans. Borrowers who have a score under 650 end up getting just a  minor fraction of closed purchase loans. 

On the other hand, borrowers with a 740 credit score or above are more likely to get access to lower interest rates. Most preferably, financial institutions and other lenders will use your FICO score to analyze your creditworthiness for the loan. 

Credit Score to Buy a House - Loan Type

As we mentioned above, the credit score mortgage requirement will differ from lender and loan type, so understanding the criteria for each loan is essential to outline a hassle-free plan for buying a home. Keep reading, we are listing different types of loans and specific requirements for your understanding. 

Loan TypeMinimum Credit Score
FHA Loan500
Conventional Loan 620
VA LoanLower to 640
Jumbo Loan700
USDA LoanLower to 640

FHA Loan - 500

Do you have a credit score to buy a house in your 500s? Don’t worry you still can qualify for a few loans like debt insured by the Federal Housing Administration. This means lenders can impose tier credit minimum requirements for FHA loans, and borrowers who fail to meet these minimums will have a harder time getting approved for the loan. 

FHA loans will benefit you by offering down payments at a low rate and 3.5%. Though, to qualify for a low down payment FHA loan you need to have a FICO score of at least 520. If you have a credit score ranging from 500 -579 then you will have to make a 10% down payment as a loan requirement

If a borrower’s credit score is below 600, a lender would only consider lending them money if the borrower has a secured financial status. 

A borrower with a crest score of 500 is more likely to get access to the combination of. collection accounts, judgment, and more.

Conventional loan - 620

You can be approved for a conventional loan with a credit score as low as 620, yes you heard it right! As you know, conventional loans generally have higher credit score requirements, but it helps borrowers to get lower interest rates. Additionally, borrowers can get the advantage of earning a break in the cost of private mortgage insurance or PMI, required when you make a down payment of less than 20% on a conventional loan. 

Additionally, with a 10% down payment, 620 scared borrowers will need to pay 1.1% PMI. Whereas, a borrower with a credit score of 760 FICO borrower will pay 0.30% PMI. 

VA loans -640

The loans that are assured by the Department of Veterans Affairs are referred to as VA loans. However, these loans do not have a government-set credit score limit to buy a house. The main or only qualification that applicants must meet includes that they must be a veteran, an active duty member of the military, or an eligible spouse. 

However, VA lenders can choose their minimum credit score limits. Though, the minimums can differ but generally it ranges from lower score to mid 600 score. 

Jumbo loan- 700

If you want a mortgage that is larger than the conforming loan limit is commonly known as a jumbo loan. Most lenders with this loan type will expect a credit score mortgage of 700 or even more. Since lending a larger amount for a loan is quite risky, lenders will look for home buyers that have strong financial conditions including excellent credit scores. 

When you have a FICO score of 740 or more, you are more likely to get access to the best jumbo loan rates. Additionally, by utilizing a jumbo loan calculator, you will get charity on getting a lower interest rate that can make a bigger difference on your entire budget for buying a home. 

USDA loans - 640

Like VA loans, USDA loans are for the US Agriculture Department and they don't have any predetermined credit score limit for getting a loan. Even in this loan type, lenders can choose to set their minimum credit score requirements for applicants. If in case you have a credit score of around 640 then you can be eligible for credit processing on USDA loans. 

Key factors to consider for FICO score to buy a house

While credit score plays an important role in qualifying for mortgage loans, it is not the only factor that you should be concerned about. Usually, lenders would look at other factors as well before they decide on lending you money. Let’s delve in deeper to explore a few must-have factors to the FICO score to buy a house. 

Loan to Value Ratio

This ratio aids in measuring how much money a borrower owes on the loan compared to the amount worth of the house. If you have a lower rate of LIV, it means you are a less risky applicant to the lenders. If you wish to lower LIV rates, you need to pay a larger amount of down payment. 

Debt to Income Ratio

This is the calculation method that allows lenders to analyze whether you can handle an additional debt, often expressed in percentage. Additionally, DTI will compare your monthly loan payments to the gross income that you earn, which is considered lower the better. If you want to qualify for a mortgage loan, your DTI must be below 36%. 

History of Employment and Your Income

Most lenders will consider verifying your employment to check whether you are yearning for a steady income for at least 2 years. This indicates that a borrower can repay the loan on time. If you are a retired individual or do not have an active income then your lender will ask for the proof of documents stating that you will be able to make your monthly loan payments successfully. 

Your Savings and Assets

Lastly, lenders will also have a look at your net worth, like cash savings, retirement accounts, total investments, and other assets. This helps in determining that if a borrower loses their main source of income then how long can they make monthly loan payments to lenders? 

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How to Improve Credit Score Mortgage?

Not every individual has a higher FICO score to buy a house, then what is the solution? Can they improve their scores? If yes, then how? To begin with, borrowers must consider putting the plan for buying a home aside for a while and focus on improving credit scores. Here’s how you can improve your credit profile. 

Have a look at the credit report

Firstly, you should focus on identifying the factors that are leading to lowering your credit scores. You are entitled to one free credit report from each of the 3 main credit bureaus. That’s the time you can utilize and figure out the excessing factors that are disturbing your credit profile. 

Maintain a low credit card balance

As per the experts, you should not use more than a 30% limit on any credit card, and if you can manage to utilize a lower credit balance it would be better for your FICO score. The amount that you use from your credit card is loosely termed credit utilization, and it will be considered the second biggest factor in your score. 

Keep your credit card open

Closing your credit card will lead to a reduction of the amount available on your credit, which can affect your credit utilization rate and fluctuating credit score. It is advised to make an occasional charge and consider paying it off. This will indicate to the issuer that you are an active user and stop them from closing your credit card. 

Be careful of applying for a new credit card

If you want to build a thin credit profile, then applying for a new credit card, secured credit card, or credit builder loan won’t harm you. Note that, you will need 6 months to proceed between opening a new credit card and applying for mortgage loans, so time for application on a new credit card plays a vital role. 

What is a Good Credit Score for Buying a House?

As we mentioned above, the good credit score will differ from the lender's minimum criteria and loan type, however, the majority of the lenders will consider 650 as the minimum credit score for a loan to buy a house. The average credit score for mortgages ranges from 550 to 649. A good credit score is somewhere between 700 to 800. 

Read Also:- From Renter to Homeowner Buy Your Dream Home with Effective Tips

How can I Check My FICO Score to Buy a House?

While you work hard to build a higher credit score, it is important to check your progress with credit score-free reports. These are offered by some credit card companies and a few Personal finance websites. 

However, free credit services often use VantageScore, which is a credit score calculating model - a competitor of FICO. Mortgage lenders are more likely to use older versions of FICO models (2, 4, and 5), but you can select your ideal method to track your score with any model. Whether you choose Vantage Score or FICO, they won't be identical, they generally move in the same direction but the data collected by 3 bureaus varies. 

It is advised to check your FICO score so you will know exactly what lenders are analyzing when they skim through your account details and credit profile. However, you will need to purchase your FICO report, you can buy through FICO.com and choose to cancel monthly charges after you have a track rather than paying ongoing fees. 

However, when you check your credit profile through free sources and if you fall under excellent credit score ranges you don't need to pay for the plan to check your FICO scores. As you have a good enough credit score to qualify yourself for robust mortgage loans and lower interest rates. 

Why If I don't Have a High Enough Credit Score?

Having a bad or lower credit score means you are less likely to qualify for mortgage loans, until and unless someone you know is ready to lend you money to help you out. However, having a co-signer who has a good credit score can help you get access to secured loans to buy your house. 

If you don't have assistance like this, then the only option left for you is to wait for a while and focus on building your credit profile and increasing your FICO score. 

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Bottom Line

Credit score can vary from the lender's criteria and the type of loan you opt for, in any case maintaining a lower credit balance and having a higher credit score will be a savior to getting a mortgage loan with lower down payment criteria and lower interest rates. 

If you don't have a good score as of now, don’t worry you can wait for a while to build your profile or consider various options to get access to secured loans.

Frequently Asked Questions

Q.1 What is the time duration for improving a credit score?

The time to improve your credit score varies based on your financial condition. Generally, making a positive change in your credit behavior can start impacting your score within a few months, but important or large improvements might take a year or more.

Q.2 Can I buy a house with bad credit? 

While it is possible to buy a house with bad credit, it can be more challenging. You might have limited mortgage options and will have to pay monthly loan payments with higher interest rates. It is advised to work to improve your credit before buying a house can help you secure better terms.