Finances

What is the minimum credit score needed to buy a house?

Financing a new home might seem complicated. But with the right information, you will be one step closer to your dream home! So, read on to find out what credit score is needed to buy a house!

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Get started on your home buying journey today

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Find out the minimum credit score needed to buy a house. Source: Freepik

Buying your dream house can be daunting at first. But once you consider the risks and are aware of your option, it becomes easier to make a good decision.

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In this article, you’ll find out the credit score needed to buy a house and how to improve your score to access better mortgage options! So let’s get started with the tips.

What is a credit score and why is it essential when purchasing a home?

A credit score is the most important number in your financial life. This three-digit number will represent your creditworthiness. Financially speaking, it will define if you can be trusted or not.

The credit score ranges from 300 to 850, meaning 300-579 is poor, 580-669 means fair credit, 670-739 is good, 740-799 stands for very good, and 800-850 for exceptional.

So remember that the higher your score, the better you’ll look to potential lenders.

A credit score is based on five major facts: your payment history, credit usage, the types of accounts you have, your recent activity, and the length of your credit history.

Two main scoring models are mostly used: FICO and VantageScore.

Both base their evaluations on the information the major U.S. credit bureaus provided: Experian, TransUnion, and Equifax.

When purchasing a home, your credit score is a major factor. Lenders will check your credit history to see how you’ve handled previous debts and if you’re likely to pay back the loan or not.

Also, displaying a higher credit score increases your chances of qualifying for lower interest rates and better loan terms! So before applying, look at your score and, if needed, improve it!

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What is the minimum credit score to get a mortgage?

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Get started on your home buying journey today! Source: Freepik

The minimum credit score will vary depending on some factors. The average score requested usually is 620, but it will differ accordingly to the loan types.

Conventional loans, which offer standards set by Fannie Mae and Freddie Mac, require a 620 FICO score from their applicants. FHA loan requirements may vary.

You can apply with a 3.5% down payment and a 580 FICO score or a 10% down payment with a 500 credit score.

If you decide to apply for a VA loan destined for the U.S. military and their families, most lenders won’t set a minimum credit score requirement.

For USDA loans offered for rural areas, the minimum requirement for applicants is a 640 FICO score.

How do lenders make their decision?

The process will vary from lender to lender, but some standard information is more likely to be considered. Besides your credit score, they will check your credit history!

Also, lenders will consider the information in your application form important, such as bank accounts, if you already have an account with them, and your expense-to-income ratio.

The lender will also check your savings, employment history, and income to ensure you have enough funds to make your payments.

Their lending policy is also a significant matter when making a decision. Once they have all the information they need, they’ll put it all together and evaluate if you’re creditworthy or not!

Improve your credit score before applying for a mortgage: 6 easy steps

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Improve your credit score before applying for a mortgage! Source: Freepik

If your credit score is not that good, the good news is that you still have time to improve it! As previously said, the better your score, the better terms, and rates you’ll get.

Check below six tips to raise your credit score before applying for any mortgage loan!

Make on-time payments

It might seem the most obvious advice. But by making on-time payments, you stay on top of your finances and avoid having any late or missed payments reported on your credit history.

Avoid new credit card applications

It is not forever. But if you avoid credit card applications for at least six months before applying for a mortgage, you can prevent any negative impact on your credit score.

Remember, your financial decision will always be shared in your credit history.

Avoid closing credit cards

When you close a credit card account, the average of your accounts will decrease, and you will have a lower total credit available.

Remember to always check your credit report

It would be best if you kept a close eye on your credit score. Look at the details and check for any errors.

It does not always happen, but credit bureaus can record mistaken reports about your credit history.

Don’t overspend

Try to always keep within your credit limits. You won’t need a new debt that you cannot pay. So use your credit responsibly.

Add an authorized user to your account

Doing this will give a family member a credit card linked to your own. So when the secondary card is used, the purchases will be registered as yours, which will help you improve your credit score.

The bottom line

The requirements for applying for a mortgage loan might vary, but your credit score will always be an essential part of the application process. 

You won’t need a perfect credit history to apply for a mortgage loan, but it is important to show up as a creditworthy applicant if you want to guarantee better rates.

So remember that staying on top of your finances will potentially give you more financing options.

Are you ready to get started with your home-buying journey? We bet you are! 

In case you want more tips to help you stay in control of your personal finances, read the following post and learn seven simple tips to organize your financial life!

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About the author  /  Beatriz Vieira

Beatriz Vieira is a producer and copywriter who is part of the finance writer team in this portal. She has a degree in Journalism and aims to improve her bilingual writing skills. Her subjects of most significant interest are culture, finances, and self-development.

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