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If you’re looking into buying a house.

The first thing you need to do is check your credit score.

So what is credit score is needed to buy a house in 2019?

The answer is that it varies by loan programs and lenders.

In this post we will discuss the minimum credit scores needed

Click here to Request free mortgage analysis from an Alliance member

Credit Score Needed to Buy a Home

Your credit score is the first thing a mortgage lender will check when seeing if you qualify for a loan. While there are many factors involved in qualifying for a loan, your credit score is the most important.

Typical minimum FICO scores by mortgage type:

  • FHA Loan – 580+ credit score (500-579 score requires a 10% down payment)
  • VA Loan – Any credit score (some lenders require 580 minimum)
  • USDA Loan – 620+ credit score
  • Conventional Loan – 620+ credit score

FHA Credit Score Requirements

FHA loan credit requirements

The minimum credit score you need to purchase a home will depend on the type of home loan you qualify for.

What exactly is an FHA loan?

FHA loans are backed by the Federal Housing Administration. The FHA does not issue the loans, they merely insure them just in case the borrower defaults on the loan. This insurance by HUD reduces the default risk for the lender allowing them to make more home loans.

What is the minimum FHA Credit Score required for a first time homebuyer?

FHA loans provide great assistance to many first-time home buyers by offering mortgage loans with lower down payments options

Many first time home buyers need lower down payment options and an FHA loan meets these needs. The required down payment is 3.5% with a credit score of 580+ The down payment can be obtained by a family /friend member as a gift on this program as well.

FHA loans also have friendlier credit & debt ratio requirements than most mortgages.

Remember , If you have a 580 or higher FICO score you will just need a 3.5% down payment. Getting approved for an FHA mortgage with a 580+ score is much more likely than if your score was below 580.

However, getting approved for an FHA home loan with a credit score in the 500-579 range is difficult but not impossible. You will need work with an Alliance member to strengthen your application.

It’s strongly encouraged that you review your credit report for any discrepancies or inaccurate reporting.

Click here to Request free mortgage analysis from an Alliance member

Check your Scores for Free

The first thing you need to do before applying for a mortgage loan is to check your credit scores. There are a few websites that will give you an insight into your credit report without actually having a hard credit pull.

These companies even have an app that will alert you when something on your credit profile changes.

Will Alliance Lenders look at more than just my credit score?

Alliance lenders look at the borrower’s ability to repay a mortgage.

If you have less than perfect credit : the credit report will need to reflect that you have re-established credit or if there was an economic/life event that caused the derogatory credit and you have recovered from the financial hardship.

Alliance lenders will also look at your debt; a low debt-to-income ratio is a strong compensating factor for less than perfect credit. Compensating factors are factors that reduce the lenders risk, allowing them to approve borrowers with lower credit scores.

Alliance lenders will also want to see recent solid payment history with no late payments or collection accounts in the past 12 months.

Compensating Factors for Bad Credit

  • Low debt ratios
  • Assets
  • Good employment history

Credit Score Ranges

There are three major credit reporting agencies in the U.S. TransUnion, Experian and Equifax. All three bureaus grade your credit history on a range from 400 to 800+.

Your score will be different from each credit bureau because not all creditors will report to all three companies. The average 2019 credit score is 685 in the United States

Credit Score Ranges

  • 500-579 = Bad credit score
  • 580-619 = Less than fair credit score
  • 620-679 = Fair credit score
  • 680-739 = Average credit score
  • 740 and higher = Great credit score

How does my credit score affect my interest rate?

Potential Homebuyers often ask, what is a good credit score to buy a house? Your credit score will affect the interest rate you receive as well the loan program. Less than perfect credit scores often have higher rates thus leading to a higher monthly payment. The higher your credit score is will lead to more loan options.

The economic principal of “risk versus reward” factor is in play here. The better the score, the better the risk etc….

  • 579 and lower– If you are approved for a mortgage with this low of a score you will have a credit score as much as 2%-3% higher than the current lowest rate.
  • 580-619– You can expect an interest rate as much as 1% -1.5% higher than the lowest rates available.
  • 620-679– In this credit score range, your interest rate will be potentially affected. Rates could be .5% higher than someone with great credit will receive.
  • 680-739– This is the range most homebuyers scores fall into The rate will not be affected much at all in this range.
  • 740 and higher– You will be offered the best mortgage rates mortgage

Ideas to improve or maintain your credit

Pay off Existing Debt and Lower balances on Credit Cards and Other Revolving Credit

Your credit utilization is a real important factor in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. For example, if you typically charge about $200 each month and your total credit limit across all your cards is $1000; your utilization ratio is 20%. The higher the credit utilization is on an account, the more potential damage is done to your credit score.

  • Paying off debt and keeping credit card balances low.
  • Becoming an authorized user on another person’s account (as long as the other party uses the credit responsibly).

The higher balance you have on your credit cards, the lower your credit score will be. Make sure to pay your credit card balances as low as possible before applying for a mortgage

FICO does consider authorized user accounts into their credit scoring algorithm. This is a good way to help improve your credit profile.

Current payments & Credit monitoring

Another great idea to maintain or improve your credit is to pay all bills current and on time monthly as well as monitor your credit report for any inaccurate payments.

FHA loan credit requirements

Commonly asked questions

What credit score do you need to purchase a home?

FHA loans require down a 580 credit score with 3.5% down payment and 500 scores require 10% down payment.

Do FHA home loans only come with a fixed-rate mortgage?

No, there are several fixed-rate or an adjustable rate mortgage options insured by FHA

Are FHA mortgages for first-time homebuyers only?

No. While they’re FHA mortgages are great for the first-time homebuyer. FHA financing is available to all home buyers looking to purchase a house as their primary residence.

What if I already have an FHA loan?

One of the many great FHA benefits is that you can use this financing vehicle as many times as you want without penalty. You may also have two FHA home loans at the same time under certain circumstances. Ex: If you move outside the reasonable commuting distance, you can buy a new home utilizing another new FHA loan

How can I increase my credit score so I can get a home loan?

To improve your credit score quickly is to lower the balances on your credit cards. This reduction improves your credit utilization. The lower your credit card balances are the better chances are that your credit score will increase. You will also need to pay all bills on time to improve the credit pay history.

Click here to Request free mortgage analysis from an Alliance member