Do you have plans on finally settling down and purchasing that beautiful home? Your credit score can play a role in securing the house of your dreams. Although, it can be a confusing topic, even for financial-savvy consumers. However, one common knowledge is that a good score can increase your chances of qualifying for a mortgage. Because this way, lenders gain more confidence that you won’t have problems paying on time. It is why they set minimum score requirements when applying for certain loans.

While every lender is different, it is still essential that you know where your score falls and how it can impact your loan application. Once you have everything you need to know, you can start on the path to your dream home.

Good Credit Score to Buy a House

Lenders use the FICO (Fair Isaac Corporation) model when determining the best credit score to buy a house. It grades you on a point range from 300 to 850. In addition, a higher score indicates a lesser risk to the lender.

• 800 or higher: Exceptional
• 740-799: Very good
• 670-739: Good
• 580-669: Fair
• 579 or lower: Poor

Expected Credit Score By Loan Type

Although a higher credit score may be more favorable to lenders, you can still secure a loan with your less-than-ideal score. It now depends on the type of loan you plan on getting. Thus, knowing the minimum required score for each loan type will help you map out your next move.

Conventional Loan Requirements

There is no backing from the government for conventional loans. You can opt for this if you have a high credit score and enough money saved up. The recommended score for this is 620 or higher. You can still apply for this loan even if your score doesn’t meet the requirement. However, you would have to pay a higher interest rate or a larger down payment, which could pose difficulties for you.

FHA Loan Requirements

The Federal Housing Administration insures this loan type. It is perfect if you have a lower credit score or have less cash stored for a down payment. For this loan, your minimum score must be 580. However, you can qualify for a higher FHA mortgage if you score above the minimum.

VA Loan Requirements

This loan type has the backing of the U.S. Department of Veterans Affairs. If you are an eligible member or a spouse of military personnel, then you qualify for this. The good news is that there is no minimum credit score requirement. However, many lenders who extend the financing require 620 as the lowest requisite score. Another thing is that VA loans have a one-time funding fee.

USDA Loan Requirements

The U.S. Department of Agriculture insures this loan. If you are a low-to-moderate-income borrower, this is for you. To qualify, you should buy a single-family house in an eligible rural area. Moreover, you need a minimum credit score of 640. If you don’t meet this criterion, USDA lenders can consider yours by analyzing your credit.

Jumbo Loan Requirements

This loan type is larger than a normal-sized mortgage. Jumbo lenders usually call for a 700 or higher credit score. It is because there is a higher risk when borrowing a massive amount of money. What’s more, they require a low debt-to-income ratio. And you have to have a hefty amount of cash to qualify for this loan.

How Your Score Affects Your Mortgage Rate

It will depend on the lenders what score you should have to get the lowest mortgage rate offer. However, even the slightest difference in your score can notably impact your monthly payout. Thus, talking with your lender goes a long way to preparing yourself and your finances.

Keep in mind that it is harder to get more affordable rates with a low credit score. In other instances, it could even lead to the rejection of your mortgage application. Although getting an approved application is not entirely impossible. You can lower the amount you will borrow and add a co-signer. Having a co-signer means that they will be responsible for the debt. Thus, it can take a lot of work to make someone agree to it. In addition, you risk your relationship with them, especially if you miss out on payouts. It is because it will affect your co-signer’s credit score.

The Bottom Line

Simply put, the credit score you should have depends on the type of loan you’re applying for. A low credit score doesn’t signify the end of it all. You can still get an approval; however, there are additional requirements. Hence, a higher score ensures you get the best mortgage and a fast acceptance of your application. So constantly checking your credit score can help you make proper adjustments. Now with all of these in mind, you can be more confident about securing the home of your dreams.

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