Buying a home of your very own is the American dream but there are still over 100 million people in the US that rent. While some people choose to rent others either can’t afford to buy a home, don’t have good credit, or have enough money for a down payment. What credit score do you need to buy a house? What loans can you apply for? How much money do you need for a down payment? If you are someone who would like to own a home one day, we will be going over what credit score you need to buy a house.
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What credit score is good enough to buy a house?
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In order to buy a house, most mortgage lenders would like you to have a minimum credit score of 620. While some lenders might approve you for a home loan in the 500s the ideal credit score needed for a home loan is between 620 to 740. The higher your credit score the better interest rates and loan terms you will get.
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What is a credit score?
Your credit score is what lenders will look at to determine if you are trustworthy enough to give money too or you are too much of a risk. There are two credit scores to look at your FICO score and your Vantage Score. These scores are similar but are calculated differently and are used by different lenders, banks, and credit card companies. For instance Credit Karma uses the Vantage Score while 90% of lenders use the FICO score.
View your FICO Score on myFICO
View your Vantage score on Credit Karma
Related: Credit Karma vs FICO Score
How is the FICO Score calculated?
While 90% of lenders use the FICO we will break down how your FICO score is calculated
- Payment history, 35% – history of on-time, missed, or late payments
- Amounts owed, 30% – how much debt you have (credit cards, loans, mortgages, student loans)
- Length of credit history, 15% – how long you have been using credit
- New credit, 10% – any recently opened loans or credit cards
- Credit mix, 10% – installment loans and revolving credit
Related: All You Need To Know About The FICO Score
If you have a credit score below 620 you will need to increase your credit score before you buy a home. When you increase your credit score you will get a lower interest rate and get approved for better loan terms.
Related: Best Loans For Bad Credit
What credit score is needed to buy a $300,000 house?
To buy a $300,000 you need to have a minimum credit score of 620 however even with a 620 credit score you could still be paying a higher interest rate and a higher monthly mortgage payment. A score of 740 and above will get you the best mortgage rates.
Related: What Is A Good Credit Score
Types of Home Loans
FHA Loan
FHA loans are insured by the Federal Housing Administration and can allow you to buy a home with a down payment of 3.5% with a low credit score of 580. If you put more than 10% down you can get an FHA loan if you have a credit score as low as 500 but most FHA loans require a minimum of 580.
Conventional Loan
A conventional loan is the most common type of mortgage. The overall borrowing cost of a conventional loan after fees and interest can be lower than unconventional loans that are backed by the government. Conventional loans don’t have any strict regulations on income or home type qualifications they do have strict regulations on your credit score and debt-to-income ratio.
You can get a conventional loan with as little as 3% down and a minimum credit score of 620 to qualify. You do need to buy Private Mortgage Insurance if you have a down payment of less than 20%.
VA Home Loan
VA home loans are for members of the Armed Forces and National Guard and are insured by the Department of Veteran Affairs. With a VA home loan, you can get approved for 0% down and lower interest rates than most other types of loans. What credit score do you need for a VA home loan? There is no minimum credit score required.
Where To Appy For A Home Loan
If you’re ready to start the process of buying your home there are many places to look for a home loan. The best options are going to a bank that you already have an account with and a good relationship. For instance, if you have a Bank of America checking account or credit card try looking into their home loans to see what they have to offer. They already have you as a customer so they will want to work with you to get you approved for a home loan.
Another option for a home loan is to go to a local credit union. Credit unions are not for profit and usually have the best rates than major national banks.
The next option is to try large mortgage companies such as Rocket Mortgage, and Lending Tree as they specialize in home loans and make the process very easy, and everything is done online.
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Related: How To Pay Off Your Mortgage Early
Final Thoughts
A minimum credit score of 620 is needed to get a home loan however any credit score over 740 will be the best option and get you the lowest rates. To improve your credit check your credit report and monitor your credit often.
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