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Credit Score You Need to Buy a House

Credit Score You Need to Buy a House
by Jerome Foster - July 19, 2022

Since lenders are starting to relax their lending requirements, it is a little easier to obtain a mortgage now than it was while the epidemic was in full swing. However, simpler does not equate to simple, and you will still need the highest credit score possible to avoid further examination from your lender.

A conventional mortgage normally requires a credit score of 620 or more, but you might be able to acquire a loan from the government with as little as a 500 score.

In general, the better the interest rate, the higher the credit score. However, since lenders have the discretion to set their own credit standards, you must have a decent credit score before making a purchase.

What is the requirement for a mortgage?

The required credit score for a mortgage varies depending on the lender and the kind of loan (conventional or government-backed). A universal credit score for mortgages is not available.

The minimal credit score for a mortgage normally runs from 580 to 620, according to Gina McKague, founder of McKague Financial. However, this ultimately depends on the lender. Different loan kinds call for various minimum credit ratings.

Pick Between Conventional or Government Guaranteed Loans

You can pick between conventional loans or loans guaranteed by the government that is protected by the Federal Housing Administration, the Department of Agriculture, or the Department of Veterans Affairs. You may be eligible for a government-backed loan more easily than a conventional loan since the government protects the lender in the event that you default on your mortgage.

Lenders will want a credit score of at least 680 if you want a jumbo mortgage, which is a mortgage that exceeds the government's lending limitations for mortgages backed by Freddie Mac and Fannie Mae.

A jumbo loan is a mortgage that is greater than $548,250 in most states. For jumbo loans on single-unit properties, many lenders demand FICO scores of at least 700, while VA borrowers can get them with credit scores of at least 640.

Can Someone With a Low Credit Score Get a Mortgage?

While a low credit score won't prevent you from getting approved, it frequently results in higher payments than with strong credit.

According to Glenn Brunker, president of Ally Home, a part of Ally Bank, lenders typically see a borrower's credit score as a leading sign of that person's probability of repaying a loan. All other things being equal, the lender "will ask a borrower with a lower credit score to pay a higher rate," according to Brunker.

Even a slight variation in your interest rate over time can add up to thousands of dollars. A loan for $250,000 with a 30-year term and a 4 percent interest rate results in total interest payments of $179,674; an additional quarter of a percentage point leads to total interest payments of $13,072.

You would pay $1,194 per month at a 4 percent interest rate and $1,230 per month at a 4.25 percent interest rate.

If you are interested in more articles like this, here’s one about 5 different types of mortgages.

Author

  • Jerome has worked for an international real estate magazine in the past before joining Prudentialcal. He now spearheads our team of writers and ensures the quality of content we produce weekly.

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