You don’t have a separate rating called aÂ mortgageÂ credit score, but lenders do look at your score, credit history and several other factors when deciding whether to approve you for a homeÂ loan. Contrary to what some people think, though, you don’t necessarily need an excellent orÂ good credit score to get a homeÂ loan. How high your score is depends on your current financial situation, downÂ payment and other factors.
What Does MyÂ Credit Score Need to Be for a Mortgage?
The short answer is that it depends.Â Mortgage lenders will do a hard inquiryÂ on your credit to see the score and the details behind it. YourÂ credit score is typically a good first impression on how risky of an investment you are.Â Mortgage lenders don’t want to be left holding the keys to your home if you don’t or can’t make regularÂ monthly payments, or if you makeÂ late payments, on your homeÂ loan.
Factors that can impact whether yourÂ credit score is high enough to be approved for a mortgage include:
- What type of homeÂ loan you’re seeking
- How much otherÂ debt you have
- The details of your credit history, such as positive and negative items reported toÂ theÂ credit bureaus
- The size of your downÂ payment
FHA mortgage loans may be among the easiest loans to get in terms ofÂ credit score requirements. Individuals whoÂ qualify as first-time home buyers under FHA (Federal Housing Administration) backed lending programsÂ may be ableÂ toÂ qualify for mortgage approval with aÂ credit score as low as 580 and a low downÂ payment of only 3.5%. In cases where buyers can put forward 10% or more for a downÂ payment, some lenders may approve individuals with FICO scoresÂ as low as 500.
For moreÂ conventional loansâthose that meet theÂ underwriting standards put forth by Freddie Mac or Fannie Macâapproval usually requires aÂ good credit score. At minimum, these types of loans usually require a FICO score of around 620, but that assumes other factors are in your favor. A lower downÂ payment orÂ higher credit utilization, among other things, could mean you need aÂ higher credit score to secure mortgage approval.
What Is a DecentÂ Credit Score for a Mortgage?
The answer is probably 620 or higher. You do want to minimize any surprises during the mortgage application and home buying process. Take the following steps to avoid this risk.
- Get a look at yourÂ credit score andÂ report. If you haveÂ bad credit, consider taking steps toÂ improve your credit score.
- Dispute or work with a credit repairÂ company to fix any inaccuracies on theÂ report before you apply for a mortgage.
- Evaluate whether your credit history and score positions you to achieve your homeownership goals now or if you should take time toÂ improve your scoreÂ organically first.
- Research the mortgage processÂ so you understand how it works.
- Consider working with a mortgage broker if you’re uncomfortable with the entire process. These pros can often help you understand which type of mortgage is right for you and howÂ toÂ qualify for it.
Can YouÂ Buy a House with aÂ Credit Score of 590?
You may be ableÂ toÂ qualify for an FHA or nontraditional homeÂ loan with a lowÂ credit score. Your chances of doing so are higher if you can tie your low score to a single issue and you otherwise have a strong credit history. You can also increase your chances by lowering your credit utilization rate, having a lowÂ debt-to-income ratio and saving up to put a large percent down when you buy the home.
Should You Get a Mortgage with Your CurrentÂ Credit Score?
Ask yourself this important question: Are you so preoccupied with whether you can get approved for a mortgage with your currentÂ credit score that you forgot to ask yourself whether you should?
YourÂ credit score impacts more than whether or not aÂ lender approves you for a homeÂ loan. It also impacts yourÂ loan and term options, which can impact the overall cost of the home. One of the most important parts of the mortgage that may be tied directly to yourÂ credit score is the interest rate.
A good orÂ bad credit score can mean a shift up or down for your mortgage interest rate. And even a fraction of a percent in either direction can drastically change how much youÂ pay for your home. Consider the examples below, which are applied to a $200,000 homeÂ loan for a term of 30 years.
- An interest rate of 3.92% equals payments of $946 per month and a total home cost of $340,427 over 30 years.
- An interest rate of 4.42% equals payments of $1,004 per month and a total home cost of $361,399 over 30 years.
- An interest rate of 4.92% equals payments of $1,064 per month and a total home cost of $382,999 over 30 years.
Just a difference of 1% can result in savings (or losses) of more than $40,000 over the life of your mortgage. Use Credit.comÂ toÂ check credit score andÂ creditÂ report card to make sure yourÂ credit score is as high as possible before you start the mortgage application process.
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