Monday, 3 February 2020

What Credit Score You Need To Buy A House


Today we're going to be talking about what's a good credit score to buy a house. I can tell you that the answer isn't as simple as what you may think, what I can tell you is the most common answer it's going to be a 620 middle score. And when I say middle score that means the mortgage lender is going to pull all three of your credit bureaus and they're not going to go with the score that's the highest or the lowest, they're going to go with whatever score is in the middle.

Let's get Started


FHA Mortgage Loan: 580 or Higher Credit Score, 3.5% Down Payment.

FHA Mortgage Loan: Lower Than 580 Credit Score, 10% Down Payment

FHA will actually let someone with a 580 credit score get approved for a mortgage, you would put in a 3.5% down payment but, if your credit score is lower than that 580, you would have to put a 10% down payment. Don't be fooled just because you can get a mortgage loan with a 580 score and think that you won't pay a higher interest rate, because your credit score still will affect the interest rate that you get on that loan. So it can increase your costs as far as that loan goes.


What Is FHA Loan? (Federal Housing Administration)

If you're not sure of what an FHA loan is it's a loan that is backed by the Federal Housing Administration. The federal housing administration "FHA" is a government entity, and they back these loans that they tell lenders that if you go ahead and give out this loan to this person will ensure that they actually paid. And if they don't, we'll reimburse you the money for the damages.

  • This is good because the average consumer may struggle with their credit score so this lower credit requirement and also makes home-buying more affordable with lower down payments. 

But, because of this, you do have to pay mortgage insurance. And this isn't the same thing as homeowners insurance. Mortgage insurance is where you pay a premium to FHA and for that premium they insure the lender that you are going to pay them back. And the funds used from that premium as part of the pool of funds that they use in order to reimburse lenders who don't get to payback.


Conventional Mortgage Loan: 620-650 Score, Varying Down Payments (3%-20% or more)

I'm pretty sure you've heard of conventional loans too. With a conventional loan, you're going to need to have like a 620 to 650 score or better than that, and just so that you know, all of these requirements can vary from lender to lender. A most conventional loan is going to have a little bit of stiffer requirements as far as getting approved for the loan but, it's not impossible or hard to obtain. What's important to note on the conventional loan is that you won't have to pay mortgage insurance as long as you put down a 20% down payment. If you put down anything less than a 20% down payment, you will have to pay mortgage insurance until you get the loan down to 80% of the home value.


VA Mortgage Loan: 640-650 Score, 0% Down Payment

We also have VA loans which are also another government-backed loan and those loans actually have 0% down payment but, you do have to have at least a 640 to 650 credit score. And one good think about the VA loans is that you don't have to worry about any mortgage insurance with those. 


USDA Mortgage Loan: 640 Score, 0% Down Payment

With USDA Rural loan, you have to have a 640 score and you also get to take advantage of 0% down payment but, you can't have a house that's located within a city or a town it has to be in a rural area. And also those mortgage insurance is required.


  • Now, as you can see there are a bunch of different credit score requirements depending on the type of loan that you get and that's why it's not so easy to really say what school you need to have to get a house, and that's why it's not easy to give a general answer on what score you're supposed to have to get a house, but of course, the better your score is, the more likely your to qualify for any type of loan. 

But there are also other requirements that may be required of you in other to get approved for the mortgage so there's also DTI which is your debt to income ratio.


DTI - (Payments On Debt/Monthly Income

You can have a perfect credit score but, if your DTI isn't where it needs to be, they'll still tell you no, because that tells them if you actually have the money to afford to pay for this house. It also tells them how much money you qualify for as fas as the mortgage. Your debt to income ratio can determine whether you'll get a $100,000 house or a $200,000 house. Also depending on certain marks on your credit report, if you have recent negative activity like recent late payments within the last six months or maybe 12 months, they may tell you that you need to have reserves.


Reserves = Mortgage Payment x certain Number Of Months.

What reserves are is basically a month's worth of mortgage in a bank account and they may tell you that you need to have 3 months' worth of a mortgage in your bank account in order to qualify for the mortgage. And that's just one precaution just to make sure that you have some money saved if you've been recently late on accounts, they want to make sure that you're not late on the mortgage by saving those reserves there.



Conclusion

There also other requirements that come into play too, it just kind of depends on your credit situation.

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