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Credit Score Needed to Buy a House in 2019
BY The Lenders Network
The first thing you need to do is check your credit score.
The answer is, it varies.
Credit Score Needed to Buy a Home
FHA Credit Score Requirements
Your FICO score is the first thing a mortgage lender will check when seeing if you qualify for a loan. While there are many factors involved in qualifying for a loan, your credit score is the most important.
In 2010, Obama signed the Dodd-Frank Wall Street reform into law. This law tighten up the requirements in the mortgage industry and made it more difficult to qualify for a loan. Especially people with low credit scores.
Typical minimum FICO scores by mortgage type:
- FHA Loan – 580+ credit score (500-579 score is possible but unlikely)
- VA Loan – 620+ credit score (some lenders require 580)
- USDA Loan – 640+ credit score
- FHA 203K Loan – 620+ credit score
- Conventional Loan – 620+ credit score
Minimum Credit Score Required for a Mortgage Loan
FHA loans have the lowest credit requirements of any mortgage, often referred to as bad credit home loans. In order for the FHA to insure a mortgage loan the borrower must have at least a 500 credit score with a 10% down payment.
However, getting approved for an FHA home loan with a credit score in the 500-579 range is very difficult, even with 10% or more down. It’s highly recommended you follow the advice in this article to improve your credit before applying for a mortgage.
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What is an FHA loan?
FHA loans are backed by the Federal Housing Administration. The FHA does not issue the loans, they insure them in case the borrower defaults on the loan. This reduces the risk for the lender allowing them to reduce the credit score needed to buy a house.
The Federal Housing Administration will back a loan if the borrower has at least a 500 credit score and a 10% down payment. However, it is very rare to get approved for an FHA loan with a credit score below 580.
Lenders look at more than just your credit score
One thing that will help you is if you can show that you have re-established credit and there was an economic event that caused the bad credit and you have since recovered from the financial hardship.
Lenders will also look at your debt, if you don’t have much debt this is a strong compensating factor for bad credit. Compensating factors are factors that reduce the lenders risk, allowing them to approve borrowers with low credit scores.
Compensating Factors for Bad Credit
- Low loan-to-value ratio (High down payment 10%+)
- Large amount of money in savings
- High income
- Low debt-to-income ratio
- Long employment history with current employer
Credit Score Ranges
Credit Score Range
- 500-579 = Bad credit score
- 580-619 = Poor credit score
- 620-679 = Fair credit score
- 680-739 = Average credit score
- 740 and higher = Great credit score
Your credit score will affect your interest rate
Your credit score will affect the interest rate you get. Poor credit scores often lead to higher mortgage rates and increased closing costs leading to a higher monthly payment.Obviously the higher your credit score the lower you rate will be.
- 579 and lower – If you are approved for a mortgage with this low of a score you will have a credit score as much as 2% higher than the current lowest rate.
- 580-619 – You can expect an interest rate as much as 1% higher than the lowest rates available.
- 620-679 – With a credit score in this range your interest rate will be slightly affected. Rates could be .5% higher than someone with great credit will receive.
- 680-739 – This is the range most homebuyers are at, your rate will not be affected much at all in this range.
- 740 and higher – You will be offered the best rates mortgage companies have to offer.
Tips to increase your credit score quickly
Pay down your credit card balances
“Pay for Delete”
Of you have any collections on your credit report, they are obviously having a significant negative impact on your credit score. You can contact the collection agencies directly and ask them if they will do a pay for delete.
A pay for delete is an agreement that you agree to pay the balance and in return the creditor agrees to remove the account from your credit report. If a creditor will not agree to this, there is no reason to pay off collections unless your lender tells you to. Paying collection accounts does not improve your credit score.
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What credit score do you need to purchase a home?
How can I get a house with low credit scores?
Do FHA home loans only come with a fixed-rate mortgage?
Are FHA mortgages for first-time homebuyers only?
No. While they’re FHA mortgages are great for the first-time homebuyer. FHA financing is available to all home buyers looking to purchase a house as their primary residence. Investment properties do not qualify.
How can I increase my credit score so I can get a home loan?
The Lenders Network has the largest network of mortgage lenders that specialize in home loans for borrowers with all types of credit scores. We will match you will the best lender based on your specific situation.
SOURCE: SOURCE: NEF6.COM