Credit scores are a big deal while applying for a house loan or mortgage. In fact, it doesn’t only have an impact on your qualification, it also plays a vital role in the down payment, interest rate, and flexibility of the payment plan.
In this update, we shall be guiding you on how to improve your credit score to buy a house, what credit score is good to buy a house, what is a good credit score to buy a house as well as what credit score do you have need to buy a house.
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What is a Credit Score?
A credit score can be simply put as a number between 300 and 850 used in representing the range of one’s creditworthiness.
They get your credit score through information obtained from one’s financial transactions history.
The digitization of the financial sector has made it quite easier to access the credit scores of individuals.
How Much of a Home Loan can I get with a 640 Credit Score?
Analysis of how much you can get with a 640 credit score hinges on the loan calculator estimate.
With FICO loan calculator, assuming you applied for a Mortgage of $350,000 your APR will be in the range of 3.97% allowing you a monthly payment of $1,662 spread across over a period of 30 years.
At the end of the day, you have paid well around $248,424 interest.
If a 640 credit score can get you that, a higher credit score can get you even something better. While those with low credit scores will have to pay very high-interest rates if they actually get approved.
Check Also: How To Get 800 Credit Score In 2022 | Easy Guide
How to Achieve a Good Credit Score to Buy a House
Reaching a good credit score is quite achievable and would require a good deal of financial discipline. Ensure you try as much as you can to always check your credit history. Look at the places you are defaulting and try to make amends.
In addition to that, we have also listed some things to do if you are looking at how to achieve a good credit score.
Quick Payment of Bills: Lenders will always look at how quickly you respond to bills. They reported late payments or skipped payments to credit bureaus which in turn affects your creditworthiness. You can put your bill payment on automation. That way you can never be late on bill payments. A house is a big deal so they want to know how you have handled the smaller bills.
Timely Payment of Debts: A history of timely payment of debts sends the right signals to lenders especially when it comes to buying a home.
Low Credit Utilization Ratio: If lenders find out you spend well above your credit limit it will score badly on your creditworthiness. Therefore, ensure you keep your credit utilization ratio low it scores good for you and increases your chances with lenders.
Frequent Check on your Credit Score: Keep a close eye on your credit report to correct any wrong information about your current credit history. It helps you to know how you are faring in your credit score. Mortgage firms will always check your credit report.
What is a Good Credit Score?
Credit scores range from 300 to 850. In this range, the higher the number the better the credit score. The lower numbers on the other hand depict a bad credit score.
Generally, individuals with credit scores between 580-669 are considered fair, they consider 670 to 739 good; while they consider 740 to 799 very good. 800-850 is an excellent credit score.
Additionally, in respect to the type of loan applied, some lenders might not consider all the five components that make up a credit score ( Payment History, Amount owed, Length of Credit History, Credit mix, New Mix).
Some creditors see anything below 580 as a red flag while others consider it fair enough. Especially for those applying for small loans.
What is a Good Credit Score to Buy a House?
What they consider a good credit score to buy a house depends on the type of loan you intend to go for. They usually present applicants with the option of VA, Conventional, or FHA Loans.
Every one of them has conditions for approval. However, on average, the ideal minimum credit score required to buy a home is 620. Anything below is likely to attract a discouraging interest rate.
Conventional loans are those not insured by the government. Private institutions Fannie Mae and Freddie Mac offer them.
To get these types of loans your credit score should well above 700. They offer good flexible payment plans and are pretty much the most commonly used amongst those with good credit scores.
The down payment for this type of loan is lower compared to others.
FHA is best for those with lower credit scores. First-time home buyers with a credit score of 580 can apply for FHA.
Basically, FHA is insured by the government, Down payment is as low as 3.5% and also allows a refinance of up to 97% of the house value.
Additionally, if you are applying for FHA, they will require you to pay Mortgage insurance. Mortgage insurance here protects the lender in event of loan default.
Nonetheless, the insurance only applies if you are paying an upfront lower than 20% of the house.
If you are a veteran or the spouse of a veteran, this might just be the right loan for you.
With a credit score as low as 580 lower you can qualify for it. There seems to be no set minimum requirement for VA loans sometimes.
It requires no down payment, unlike other loan applications. They structure VA loans in a way that favors the borrower more.
However, you must be a US veteran, service member, spouse, or a veteran’s qualified family member before you can apply.
The minimum credit score to buy a house under USDA loans is 620 or well above 600. The US Department of Agriculture backs USDA loans. It seeks to help those residing in the rural areas and moderate-income earners to afford decent homes.
The houses are usually located in USDA eligible areas. You might have to consider another form of the loan if you want anything outside that.
With everything listed above, it’s obvious that when we ask What Credit Score Do You Need To Buy a House in 2022? it all comes down to the type of loan you intend applying.
Financial prudence remains the focal point towards getting a good credit score to own a house.
The system is structured in a way that everyone that strives to maintain a good credit score gets a fair deal.
Always check on your finances and level of income before applying for any type of loan listed above. You can get a free credit score report from the credit bureau nearest to you. It helps to keep up with how far you have faired in keeping a good credit score.
Yes, you can get it. However, the conditions might be more strict than those with higher credit scores.
620 is ok for a first-time homebuyer.
640 credit score will qualify you for such loans. Higher credit scores will give you lower interest rates.
Congress created them to stabilize the mortgage market through affordable financing and mortgage for intending homeowners.