Mortgage applicants need to be aware of the importance that a credit score bears in determining what type and how much mortgage they will qualify for. Knowing your current credit rating can help you prepare appropriately, which could save money on interest rates down the line.
In order to purchase a house with the traditional loan, you need at least 620 points. If your goal is an FHA, VA or USDA mortgage then lower scores are accepted but these loans will come with higher interest rates and fees. However if your credit score reaches 760+, there may be better options for mortgages that offer more opportunities than conventional homes do – especially when it comes to low-interest rates.
There are steps you can take to improve your credit score before applying for a mortgage. The most effective way is seeking help from Credit Repair of Orlando, which offers assistance with legal and financial advice that will release the pressure off of you when it comes time to apply for a loan.
Buy a Home with Minimum Credit Score
The required credit score varies based on the type of loan and who is insuring it. Government agencies set less stringent standards than do commercial lenders when they back mortgages with their own money–such as those backed by the Department of Veteran’s affairs or others that are approved through an organization called FHA (Federal Housing Administration).
For minimum types of mortgages, the following credit score requirements apply:
- Conventional Loan: 620
- FHA Loan: 580 in most cases
- VA Loan: 580
- USDA Loan: 640
- Jumbo Loan: 700 – 740 based on loan amount
The government is always looking out for us in our daily life. They have decided to insure conventional and jumbo loans, so that you can avoid the headache of a not-so-great credit score when applying for those types of loan products.
What Credit Score is Suitable for a Home Loan?
The mortgage world is a tricky one. You need to take into account your credit score before you can even qualify for the loan, which varies from 500-680 depending on the program.
A higher credit score can help make your dream of owning a home come true by demonstrating to the lender that you will likely repay any loan they give you on time.
Lenders look at the FICO credit score, which ranges from 300 to 850. There are many factors that will affect your score such as how long you’ve had a mortgage or car loan and what type of accounts you have open. The higher the number, generally means better for them (borrowers) because they pay less interest rates on loans.
A credit score of 760 or higher is a necessity for first-time homebuyers, and those who have low scores are making themselves more vulnerable to interest rates that will be too high.
How Will My Credit Score Affect Interest Rates?
Your excellent credit rating not only saves you from life-altering financial problems but also helps ensure that once those issues arise, they’re resolved quickly and painlessly.
Every lender has his own way of giving you a good interest rate, but the slightest difference in your credit score can save you quite a bit. For example: increasing from 660 to 700 could lead to $61 more per month on your mortgage payment against an outstanding loan for 300 grand. Calculate this over 30 years and it’s like night and day.
Can I Get a Home with Bad Credit?
A credit score of less than 620 can make it difficult to purchase a home because higher interest rates and monthly payments will be needed.
If you don’t meet the bank’s requirements, there are some options to help get over this snag. You might be able to find someone who will co-sign for your loan or make a larger down payment on their end in order to secure it.