Good Credit Score to Buy a House From a Financial Advisor

Buying a home with a mortgage means borrowing a lot of money. This amount is often hundreds of thousands of dollars. You will need to pay it back over time.

Because of this, lenders are careful. They will look closely at your financial health, including your credit score, before approving your loan. Here's a look at the credit score you’ll need to qualify for a mortgage, along with tips to boost your chances of approval.

What Credit Score Do You Need to Buy a House?

To qualify for a mortgage, you generally need a credit score of at least 620. However, the exact requirement can vary depending on the type of loan and lender. “Minimum credit scores differ across loan programs—some require 640, others 660, and some even as high as 720,” explains Sean Valiton, Head of Residential Lending at Leader Bank in Arlington, Massachusetts.

Your credit score is usually measured by the FICO scale, which goes from 300 to 850. It shows how well you manage credit and loans. You can check your score through various channels, such as your bank’s website, credit card app, or even on your monthly statement. The higher your score, the more favorable your chances of getting approved for a mortgage with a lower interest rate.

Can You Qualify With a Lower Score?

Some lenders may approve borrowers with lower credit scores. This can happen if the borrowers do well in other areas, like providing a large down payment. Conversely, meeting the minimum score doesn’t guarantee approval. "Even if you meet the credit score requirement, factors like employment history and income will also be assessed," says Valiton.

Credit Score Requirements by Loan Type

Here’s a breakdown of common loan types and their typical credit score requirements:

●      Conventional Loans: Backed by Fannie Mae and Freddie Mac, these loans usually require a minimum credit score of 620.

●      FHA Loans: Insured by the Federal Housing Administration, these loans are more flexible. You’ll typically need a credit score of 580, though scores as low as 500 may be accepted with a 10% down payment. Keep in mind, FHA loans require mortgage insurance premiums.

●      VA Loans: These loans, guaranteed by the Department of Veterans Affairs, are available to veterans, active service members, and eligible surviving spouses. While the VA doesn’t set a minimum credit score, most lenders require around 620 unless a larger down payment is made.

●      USDA Loans: Offered for properties in rural areas and backed by the U.S. Department of Agriculture, these loans don’t have a set minimum credit score, but most participating lenders look for a score of 640 or higher.

Understanding these requirements can help you better prepare for the home-buying process and improve your chances of securing the best mortgage for your needs.

How to Boost Your Credit Score Before Buying a House

If you're looking to improve your credit score before applying for a mortgage, consider these five strategies:

1.     Reduce Your Debt: Paying off outstanding balances, especially on credit cards, can significantly improve your credit score. If you’re nearing your credit limit, try to pay down those balances to lower your utilization ratio, which will help boost your score.

2.     Increase Credit Limits and Keep Old Accounts Open: Your credit utilization ratio makes up a large part of your score. By requesting higher credit limits (along with reducing your existing debt), you can improve this ratio and raise your score. Avoid closing old accounts, as this could reduce your total available credit and negatively impact your score.

3.     Avoid Opening New Credit Accounts: Steer clear of applying for new credit cards or loans before your mortgage application. Doing so can trigger hard inquiries on your credit report, which may temporarily lower your score.

4.     Make Timely Payments: Payment history plays a major role in your credit score. Late payments can stay on your record for up to seven years and negatively affect your score. Make it a priority to pay bills on time to start rebuilding your credit.

5.     Review Your Credit Report for Errors: Regularly checking your credit report for inaccuracies can help identify any mistakes that may harm your score. You’re entitled to a free report once a year through AnnualCreditReport.com. Look for errors like misreported payments or unfamiliar accounts that could indicate identity theft. Dispute any inaccuracies to have them corrected.

By following these steps, you can potentially improve your credit score and enhance your chances of securing a favorable mortgage rate.

Bottom Line

Buying a home is a significant financial milestone, and your credit score plays a critical role in the process. Knowing the credit requirements for different loan types is important.

Taking steps to improve your score can help you a lot and potentially lead to better loan terms for you. By managing your credit wisely and preparing thoroughly, you can position yourself for a successful mortgage application—and move one step closer to owning the home of your dreams.

Sources:

https://www.fidelity.com/learning-center/smart-money/what-credit-score-is-needed-to-buy-a-house

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information