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What’s the Credit Score You Need to Buy a House

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What’s the Average Credit Score Needed to Buy a House Today?

The idea of owning your home is exciting, but what’s the average credit score needed to buy a house? You should know that the Federal Housing Administration requires a minimum credit score of at least 500 to buy a home with an FHA loan.

Though 500 is the minimum credit score allowed for an FHA loan, the chances of getting one can prove difficult as many lenders require a 620 to a 640 credit score to qualify. To secure an FHA loan with a credit score of 580, you will need a minimum down payment of 3.5%. To qualify for an FHA loan with a credit score of 500, you will need at least 10% of the total price of the home available as a down payment. The amount down can vary per buyer so to find out what terms apply to you, you should consult a lender.

So before you get all overly excited about shopping for a new home, you should check your credit score and see where you stand. At the same time, you should already have a good chunk of change sitting in your savings account to make a substantial down payment.

If you don’t have any money saved, and your credit score is below 580, you should wait while you build up your savings account and take productive measures to increase your credit score.

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Learn More About What’s the Credit Score You Need to Buy a House

Learn more about credit scores needed for home ownership below!

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What credit score do you need to buy a house?

If you are trying to secure a conventional mortgage, you will need a minimum FICO credit score of 620. A conventional mortgage is a home loan that follows the standards laid out by Fannie Mae and Freddie Mac. These loans are uninsured by any government agency and are considered private loans through private banking institutions.

If you have a credit score of 740 or higher, you should expect to qualify for a conventional home loan with a low down payment requirement and a lower interest rate. The lower your credit score is below 740, the more of a down payment you may need and the higher your interest rate will likely be. Again, you must have a credit score above 620 to even be considered.

If you have a credit score below 620, you should look into the FHA loans we discussed previously, or if you are an active duty service member or retired veteran, you could qualify for a VA loan to purchase a new home. To qualify for a VA loan, you should have a credit score above 580.

What is the best credit score to buy a house?

The magic number seems to be 740. A credit score of 740 or higher should qualify you for mortgages that come with a competitive interest rate as well as a lower down payment requirement. Some lenders may even let you purchase a home with very little money down if your credit score is high enough.

Essentially, being above 740 awards you many benefits that other consumers will not qualify for.

Can I get a mortgage with a 600 credit score?

Yes, you could still get a conventional mortgage with a credit score of 600. Even though the average lender will not consider you for a home loan with a credit score under 620, some lenders specialize in loans for borrowers with lower credit scores.

Keep in mind that ultimately, the best decision may be to wait to buy a home. A high interest rate on one of the biggest purchases you may ever make, can cost you a lot of extra money. If you have a credit score of 600, lenders that specialize in working with borrowers with lower credit scores may look at some additional factors to see if they can work with you to help you purchase your new home.

The lenders can:

Verify your income: Lenders may require you to verify your income with tax returns, bank statements, and pay stubs. They usually do this anyway, but they will be further scrutinizing your financial records to make sure you can make the mortgage payments.

Verify your work history: Lenders may analyze your employment history and typically require two years of continuous employment up until the point that they are reviewing your loan application.

Your credit history has to show recent improvement: Lenders may look at your credit report and may require no late payments or negative information reported to the credit bureaus within 12 months.

Analyze your debt-to-income ratio: Your DTI ratio should be under 45% of your pre-tax income including the addition of the new home loan. This is calculated monthly. Will the addition of your mortgage to pre-existing debt monthly payments equal over 45% of your monthly income?

Lenders are usually pretty strict about the minimum requirements stated above. Be sure you can meet these requirements before applying for a mortgage if your credit score is 600.

Can you buy a house with a 580 credit score?

Yes, you can qualify for an FHA loan for a credit score of 580. You most likely will not qualify for a conventional loan with this score, so you will need a downpayment of 3.5% of the home's total price before applying for an FHA loan.

What credit score is needed to buy a $200,000 house?

If you are looking at an FHA loan, then you will likely need a minimum credit score of 500 with 10% down and a score of 580 with 3.5% down. However, you should also consider your income, savings and other assets, and your total debt.

If you are looking for a conventional mortgage, you will likely need a credit score of at least 620 to qualify. However, other factors may help you. For example, if you have a 20% or higher down payment or if you have a very low debt-to-income ratio, these can help you with conventional lenders.

If you have a credit score below 740, qualifying for a home loan will not be a walk in the park. Your efforts may be better spent finding ways to improve your credit so that you can qualify for a lower interest rate.

Can I raise my credit score by 100 points in 6 months?

Yes, 6 months is a good period to focus on upping your credit score a good 100 points before trying to buy a house.

The first thing you will want to do is pull your credit report and identify areas where you can improve. The most obvious thing you can do is to pay off credit card debts. You want each credit card to be below 30% of usage, but if you can get it down below 5 or 10%, even better.

If you have any accounts in collection, contact the collection agency and try to make an offer to settle the debt and have it removed from your credit report.

If you notice any mistakes on your account, be sure to take steps to fix those as well.

What credit score do I need to buy a house with no money down?

A no money down mortgage is kind of a unicorn unless you are applying and qualify for a USDA or VA loan. You can definitely qualify for loans with a small down payment requirement of 3%, but again, those are also hard to find.

Also, lenders may require the purchase of a private mortgage insurance policy if your down payment is less than 20%.

Closing Thoughts

Buying a new house can be a rewarding investment that can provide a stable home for you and your family to grow together and to create wonderful memories for years to come. But, before you make this giant commitment, knowing what your credit score is and working to improve it, may help you secure better interest rates and more favorable loan conditions.

In some cases, you may be trying to purchase a home that does not qualify for a conventional loan or mortgage. For example, tiny homes or mobile homes may not qualify. You may be able to use a personal loan to finance a home up to $100,000. In addition, personal loans are a great way to access the funds you need to make home improvements. To check personal loan offers without impacting your credit score, apply at Acorn Finance.

Check personal loan offers with no impact on your credit score. . . get started online today!

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