A mortgage is likely the biggest loan you’ll take in your lifetime, and when qualifying for a mortgage loan, your credit is one of the critical factors that lenders use in determining credit worthiness and how much you will qualify for. A good credit score suggests to lenders that you’ll make your payments on time and won’t default on the loan. A bad credit score, on the other hand, signals you’re financially overextended and might not be able to meet your monthly financial obligations. But exactly what credit score do you need to buy a house?
Well, the minimum credit score requirements will vary by lender and loan type. In this post, we’ll briefly examine the different types of loans you can obtain and their credit score requirements.
Minimum credit score required: 620
Conventional loans are backed by individual private lenders rather than the federal government. These loans generally have a stricter credit score and other eligibility requirements, such as employment history and debt-to-income ratio. Most conventional loans require a high credit score of 620. On the positive side, they tend to feature lower interest rates and a fast approval process.
Minimum credit score required: 500
An FHA loan is a mortgage backed by the Federal Housing Administration and issued by a bank or other approved lender. These loans require a low credit score of 500, but there’s a catch; you’ll need to pay a 10% down payment. To qualify for a 3.5% down payment, you’ll need a credit score above 580.
Minimum credit score required: 580
VA loans are availed through the US Department of Veteran Affairs and made available to eligible members of the military community and their immediate families. Unlike FHA loans, VA loans don’t require a down payment. And because VA guarantees these loans, they are affordable and come at a low-interest rate. Better still, they require a low credit score of 580. However, they do require a Certificate of Eligibility (COE)
Minimum credit score required: 620
A USDA loan is a mortgage backed by the US Department of Agriculture and availed to low-income borrowers purchasing property in rural areas. Similar to VA loans, you can obtain a USDA loan with a 0% down payment. However, borrowers need to have a high credit score of at least 620 to qualify. In some cases, a lower credit score may be accepted based on the borrower’s unique circumstances.
Minimum credit score required: 680
Jumbo loans service borrowers who require mortgages larger than the loan limit set by the Federal Housing Finance Agency (FHFA). Many Jumbo lenders require a high mortgage score of over 700 because of the increased risk that comes with borrowing large amounts. These loans also require a high down payment of between 5% and 25%, depending on the borrower’s credit score and income.
Your credit score is vital when securing a mortgage as it determines your ability to pay the loan on time. A high credit score signals to the lender that you pay your debts on time and have the means to meet the monthly obligations. A poor credit score will limit your chances of getting approved for a mortgage. It signals to lenders that you have bad credit management skills and might be unable to meet the monthly financial obligations on time. While you may be able to secure a mortgage with a low credit score, you’ll pay more since these loans come at high-interest rates.
But don't fret and don't overthink it. If you are planning to buy a house now or in the near future, and you fear your credit may be a little challenged, don't retreat in fear or despair as the path before you may be easier than you think. Contact Jersey Mortgage and let us put our 30+ years of proven experience to work for you.