Why is having a good credit score important? Lenders base their decisions on how much risk you are if they choose to lend you their money. They don’t know you personally, but your credit report will tell them what kind of a borrower and a payer you are.
The good rule of thumb is that the higher your credit score is, the better you get the best rates in the market. A good credit score will boost your chances of being approved for the mortgage you are applying for because the credit score will show that you are most likely to pay on time and not miss payments.
The minimum credit score depends on the mortgage loan you are applying for. Different lenders have their minimum requirements, so it is best to ask the loan officer for their needs. But here are the general guidelines to give you an idea of what the credit score for a mortgage loan is:
1. For conventional loans, you will need to have at least a 620 credit score to get a loan and be approved to buy your dream house. But if you have a score lower than 620, you can still get a loan so ask your loan officer about the options. Conventional loans are uninsured by the government, and Fannie Mae and Freddi Mac set the standards. These are the kinds of loans that will give you a great interest rate and as long as a 30-year mortgage term.
2. The Federal Housing Administration (FHA) insures FHA loans. For FHA loans, a lower credit score of 580 is enough. These kinds of loans will require you to put in a 3.5% down payment, although if you can afford a 10% downpayment, you can have an even lower credit score of 500. That is why it is easier to get approved for this kind of loan, as it makes it safer for lenders to approve applications even if the borrower’s credit score is on the low side.
3. The Department of Veteran Affairs insures VA loans. They don’t require any down payment and are a good option for lower credit scores. But as the name implies, this is not for everybody. You need to be a Veteran, a spouse whose partner died during active duty. The VA will not require you to have a downpayment as they can finance the total amount of the home’s purchase.
The figures and requirements above should give you a general idea of your credit score for the different mortgage loans available for you. For an updated and detailed picture, contact us, and we can help you start the process.
