What Is An Acceptable Credit Score Needed To Buy A Home?
If you are like most people, you need a home loan in order to purchase a house. Few people have enough cash to buy a home outright. As long as your credit score is solid, you stand a good chance of being approved for a mortgage. Your credit score is an indicator of whether you are likely to repay your home mortgage loan or default. The question is, what, exactly, qualifies as a “good” credit score in the context of a home mortgage loan? We have the answers.
The Credit Rating Necessary to Obtain a Home Loan
In general, home-seekers need a credit score around 650 to qualify for a home mortgage with a decent interest rate. However, those with a lower credit rating might also be able to secure a home loan based on their income, lack of debt and other factors. Even if your credit score is low, you might qualify for a mortgage with a comparably high interest rate. So don’t give up if you do not have much of a credit history or credit flaws. You still might be able to obtain a home loan.
The Type of Home Loan Determines the Minimum Credit Score Necessary
No two home mortgages are exactly the same. The type of home loan you seek dictates the minimum credit score required for approval. As an example, conventional bank mortgages provided by a bank or a credit union typically require a credit rating of 620 or higher. Loans provided by these financial institutions usually have best interest rates.
Conventional bank mortgages typically have the least number of caveats, requirements and other hurdles to leap over. Unfortunately, this type of loan typically requires a comparably high credit score for qualification, especially for borrowers who do bot have at least 20% of the home’s value in the form of a down payment. The 620 credit score requirement is a direct result of government-sponsored home loan programs like Freddie Mac and Fanny Mae scooping up private mortgages and selling them to investors as long as the borrower’s credit score is 620 or higher.
Prospective Homeowner Credit Score Ranges
For the most part, a credit score above 700 is considered good. A credit score below 620 is generally considered bad. Credit scores go all the way up to 850. However, few people have credit above 800. In general, if your credit score is in the 600s, you will be viewed as a risky party to lend money to.
Though a credit score in the upper 600s is solid, a home loan to provided to someone in this credit score range will carry a higher interest rate. When in doubt, shop around! Do not take the first mortgage offer you receive. Continue to search for a home loan and you will dramatically increase the chances of securing a loan with a reasonable interest rate.
Is It Possible to buy a Home With Below Average or Bad Credit?
It just might be. However, you will likely pay an exorbitantly high interest rate if your credit is bad. Home loan lenders are willing to consider the applications of those with bad credit, especially if the applicant makes a considerable amount of money. If your debt-to-income ratio is superb, your low credit score might not be a deal-breaker. Even if your credit score dips own to the 500s, it is still possible to obtain a bad credit home loan, also known as a subprime loan. However, this loan carries a high interest rate along with additional fees.