Credit scores are three-digit numbers which tell mortgage lenders about your credit history, including how you have done recently when it comes to repaying loans. Your credit score is important when you’re applying for a mortgage loan, since it will determine how low your interest rate is and whether you even qualify for a mortgage.
What Minimum Credit Score Do You Need to Buy a Home?
In general, the higher your credit score, the more likely you are to get an attractive interest rate. However, there are also cut-off rates and minimum scores you need to reach. These vary depending on the type of home loan you’re applying for:
- Federal Housing Administration loans: With FHA loans, your minimum score will be 580 if you have a 3.5% down payment. If you can offer a 10% down payment, the minimum score is 500.
- Veterans Affairs loans: These loans are offered to qualified members of the armed forces. The department of veteran affairs does not set a minimum credit score for these home loans, but you still need to secure them through banks and lenders. Those lenders will set their own minimum score for VA loans, and these may range from 580 to 620.
- United States Department of Agriculture loans: The USDA does not set a minimum, much like the VA. However, lenders do set minimums for these mortgages. In many cases, a credit score of at least 640 may be needed.
- Traditional mortgages: If you are applying for a conventional mortgage which is not guaranteed by a United States agency or department, your lender will set the minimum credit score required. Often, it ranges from 620 to 640.
How to Increase Your Credit Score Before Trying to Buy a House
While different mortgages come with different credit score minimums, keep in mind you want to get your score as high as possible before applying for a home loan. The lower your score, the greater risk you represent to lenders, and this means you will likely get a higher interest rate or may be asked to put down a larger down payment.
Before you buy, consider these tips for improving your credit rating:
- Pay your bills on time: Set up automatic payment if you need to, but be sure to pay all your bills on time. Not doing so can mean dings to your credit.
- Pay down your loans: If you are carrying credit card debt, lines of credit or other forms of financing, pay them down but do not close your accounts. A smaller debt to credit available ratio can improve your credit score.
- Get a copy of your credit reports: Credit bureaus can send you copies. Review these to make sure there are no mistakes which could be impairing your credit history. Resolve these problems before you apply for your home loan.
Are You Ready for a Home?
If your credit score and finances are prepared for a home purchase, CENTURY 21 Core Partners is the York, PA, real estate company you need to contact. Our goal is to help you find the right property for your lifestyle. You can even apply for financing right from our website.