When you’re thinking about buying a home, your credit score is one of the biggest pieces of the puzzle. Well. Equally as big as your income at least. Think of it like your financial report card that lenders look at when trying to figure out if you qualify, and which home loan will work best for you. As the Mortgage Report says:
“Good credit scores communicate to lenders that you have a track record for properly managing your debts. For this reason, the higher your score, the better your chances of qualifying for a mortgage.”
It is likely none of that is surprising to you. The trouble is most buyers jsut don’t know, or understand, how credit scoring works and sometimes think they need a score much higher than the minimum credit score a lender is looking for to approve them to buy a home. According to a report from Fannie Mae, only 32% of consumers have a good idea of what lenders require. That means nearly 2 out of every 3 people don’t.
So, here’s a general ballpark to give you a rough idea. Experian says:
“The minimum credit score needed to buy a house can range from 500 to 700, but will ultimately depend on the type of mortgage loan you’re applying for and your lender. Most lenders require a minimum credit score of 620 to buy a house with a conventional mortgage.”
Most. Some. Those words don’t give you a lot of certainty, so basically, it varies. You need a good score to get a good interest rate, but even if your credit isn’t perfect, there are still options out there. As FICO explains:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders, and there are many additional factors that lenders may use . . .”
And realistically, even though “they” say the “minimum score could be as low as 500, that is not really true or a good thing. Sure, some lenders may go that low but you will pay a ridiculously high interest rate, and some stupidly high fees. Just no. Realistically, you have to be 600/620 or higher, or you don’t have a chance. Your approval odds for good lending terms are way better at 640 or higher, preferably 680 plus. Pretend 640 is the floor, the low point, under it is not going to give you great lending rates.
So if your credit score needs a little TLC, don’t worry, we can connect you with a lender and find out where you are, then help you create a plan to get where you need to go. In the meantime, Experian says there are some easy steps you can take to give it a boost, including:
Easy to say, sometimes hard to do, but let’s be honest. We like to be positive, but ya gotta accept reality too. You know if you’re on time or not. If you are paying your bills late, you won’t get approved for a mortgage until you are caught up and have a history of on time payments for a few months. Lenders want to see that you can reliably pay your bills on time. This includes everything from credit cards to utilities and cell phone bills. Consistent, on-time payments show you’re a responsible borrower.
Paying down what you owe can help lower your overall debt and make you less of a risk to lenders. Plus, it improves your credit utilization ratio (how much credit you’re using compared to your total limit). A lower credit utilization ratio means you’re more reliable to lenders, as a general rule. BUT, let’s talk before you start paying down the debt, as there are some strategic ways to maximize the results. Those utilization rates are more important than total debt or balances. Student loans for example, let’s say you have $45,000 in student loan debt and a payment of $300 per month. The lenders don’t really care about the total, they count the $300 per month.
While it might be tempting to open more credit cards to build your score, it’s best to hold off. New credit applications lead to hard inquiries on your report, which will temporarily lower your score. Don’t apply for that store card to get 5% off your purchase today, that is many times more damaging than you think.
Your credit score is crucial when buying a home. But even if your score isn’t perfect, there are still pathways to homeownership.
Working with us so we can connect you to a trusted lender is the best way to get more information on how your credit score could factor into your home loan.
Call us at 717-371-0557, lets get together and we can help you understand it all so you know exactly where you are, and can plan to get where you need to go. When you’re ready.
Your Friends in Real Estate,
Jason Burkholder Team
Jason Burkholder
Kelly Burkholder
Jaci Hoosier
Ron Weaver
Hometown Property Sales
717-207-9083 – office
