A credit score is a number that indicates your creditworthiness. Lenders use it to decide whether they will give you a loan and at what interest rate. If you have a low score, lenders will be hesitant to trust that you’ll pay them back in the future as agreed. Below, we discuss how much of a credit score you need for different mortgages — from a personal unsecured loan to an FHA-backed mortgage or VA guaranteed loans — and what can affect it over time.
Mortgage Types
Before buying a home, you should be familiar with the different types of home mortgages.
Conventional Loan
A conventional loan is a type of home mortgage that requires a 620-credit score. The loan attracts the lowest interest rates. You will need at least a 20% down payment on a home’s value with this loan type. You should also have a reliable income source to meet your monthly mortgage payment obligations.
VA Loan
The U.S. Department of Veterans Affairs offers loans to veterans who are looking for a new home. VA mortgage loans have become popular in recent years, but some people may be unaware that you need to meet specific requirements before being approved for one.
You need a credit score of at least 620 to qualify. You can find your credit score by requesting a free credit report from the major credit bureaus or free online services.
FHA Loan
The FHA loan is a government-backed loan that allows qualified buyers to purchase a home with a down payment as low as 3.5%. This loan type offers an excellent option for first-time homebuyers who may not have the financial means to make a 20% down payment for a conventional home loan.
However, to qualify for an FHA loan, your credit score needs to be above 580, the best score you can get on an FHA loan. The down payment you use to purchase your home will follow from your credit score and the price of your home.
Jumbo Loan
A jumbo loan is a type of mortgage that exceeds the conforming loan limit. If you are looking for an alternative to a traditional home loan, this option might be right for you. Your credit score must be at least 680 to qualify for a jumbo loan, and your income needs to be sufficient enough so that you can handle all of the payments on the new property.
What Determines Your Credit Score?
Your credit score reflects how well you have managed debt. Additional factors include the length of time since a negative entry on your report has occurred and further details about your credit history. An excellent way to maintain a high credit score is to always pay off balances in full each month and never carry a high balance on credit cards.
We have discussed what credit score you need to buy a house and the different loans available. Now you’re armed with the knowledge you need to make an informed decision about the mortgage you qualify for to purchase a home.
