What Credit Score Do You Need to Buy a Home?
October 10, 2016
October 10, 2016
Buying a home is exciting, whether you’re a first-time buyer or a seasoned homeowner looking to upsize, downgrade, or relocate. However, many would-be buyers struggle with the decision to purchase a home due to concerns about credit scores and how to qualify for a purchase money loan (sometimes called a mortgageloan).
People are often afraid to ask how high a credit rating they need to qualify for a home loan, even though it’s a common question. The answer varies, depending on the type of loan a buyer needs (and other personal factors, including employment status, income history, assets owned, and available funds to put toward a down payment), but here are some general guidelines you can use to determine whether your credit score qualifies you for the loan you need to buy a home:
- Know Your Credit Score Before You Apply. Always know your credit score before applying for a loan. If you don’t know your credit score, obtain a copy on your own, or ask a licensed mortgage broker or banker for help.
- Conventional Loans (Fannie Mae-Backed): 620 Minimum Credit Score. Although exceptions do exist, new conventional loans backed, insured, or underwritten by Fannie Mae (the U.S. Federal National Mortgage Association) typically require borrowers to have a credit score of 620 or higher; like other types of loans, exceptions may exist where borrowers have the funds to increase the down payment, qualify for special programs, or in other loan-specific circumstances.
- FHA Loans: 580 Minimum Credit Score. FHA loans are available to buyers with a minimum credit score of 580 who can provide a down payment equal to at least 3.5% of the purchase price; however, applicants with lower credit scores may also qualify for FHA loans if they can provide a down payment of at least 10% of the purchase price.
- Better Credit Scores May Help You Obtain Better Loan Terms. Generally speaking, the higher your credit rating, the better the interest rate and other terms a lender or bank will give you on a loan. While other factors also impact your eligibility and ability to qualify for a home purchase loan, buyers should strive to maintain as high a credit score as possible when planning to apply for a loan or purchase a home.
Personal and family income, investments and savings, and debt-to-income ratios also play a role in loan eligibility and amounts, as doa variety of other factors. Contact an experienced banker or mortgage loan expert for an individual evaluation of your personal situation and your ability to qualify for a loan.
Disclaimer: Your ability to qualify for a loan may vary, even with the credit scores listed above. While these guidelines are helpful, you should never rely on this or any other online article to make decisions about home loans or other financial situations. This article is not, and should not be taken as, financial advice, an offer to make a loan or a representation about whether any person can or will qualify for a loan or purchase money financing.