Uncovering the Credit Score Needed for a Mortgage

Credit Requirements for Mortgage The home mortgage process has a lot of elements to it, but one of the crucial hurdles to jump over is having an acceptable credit score to actually be able to obtain a loan. Different lenders require different minimum scores, and depending on your financial situation, there might be multiple factors that go into an approval.

In general, the higher one’s credit score is, the easier the process will be to navigate. Considerations like interest rate or down payments will typically be favorable toward applicants who demonstrate a solid credit history. However, a lower score doesn’t exclude individuals from being able to purchase a home.

Every situation is unique, so it is helpful to speak with a lender and/or financial advisor to see what all applies to your current financial position.

Getting Down To The Numbers

In the world of home loans there are fairly regulated guidelines that extend across all lenders. A person must be deemed as having acceptable credit, and usually this means that their credit report doesn’t reflect any accounts in collections or recent bankruptcies. Lenders will also verify that previous rent payments have been made on time, and that there aren’t any outstanding federal debts.

When it comes to specific types of mortgages, the numbers may vary slightly. If you’re looking to purchase a home through an FHA loan, your credit score must be a minimum of 500 before you are eligible. Having a score between 500 and 579 presents a little more of a risk in the eyes of the government, and a 10% down payment is usually required to secure this funding.

Obtaining financing through the USDA or VA programs offers a slightly more flexible format, in that they do not designate a specific number in terms of a credit score. Instead, they view applicant’s credit history as a whole and make a decision based on the bigger picture.

Another institution who will look closely at the credit score needed for a home mortgage are the insurers. If a buyer cannot put down at least 20% toward their home purchase, they will be charged mortgage insurance as a type of security policy for the lender. A similar principle applies to title loans, where a lender uses a title as insurance against a default. The insurers typically require a minimum credit score of 620.

What If My Score Is Too Low?

Don’t be disheartened if your score is lower than the numbers listed above. It doesn’t necessarily mean that you can’t buy a home. One common way to get around a lower credit score is to have a cosigner apply for financing with you. Essentially, this means that another person’s credit and trustworthiness will be reviewed in addition to the applicant’s, and they will also bear the responsibility if the mortgage doesn’t get paid.

If a cosigner isn’t an option, some buyers offset a lower score with a large down payment. Granted this can take more time to achieve and save up for, but by putting 20% or more down on a home, buyers will avoid having to pay for private mortgage insurance. This saves an immense amount of money over the life of a 30 year loan.

Spending time to boost your score is also an option if you’re able to wait before buying a home. Paying creditors on time and consistently will go a long way toward raising one’s score, as well as paying down as much debt as possible. The more money that’s available on your lines of credit, the higher your score will usually be.

Credit Scores Aren’t The Final Say

Remember, a lot of information is reviewed during the loan application process, so one’s credit score isn’t the only determining factor. If there is stable income and a reasonably low amount of debt, it’s very possible to obtain financing for a home through a variety of lenders. If a low score does in fact hold you back, it doesn’t mean you will never get a home. A little bit of time and refocusing might be all it takes to get approved later down the line.

Dylan Snyder is a seasoned real estate professional serving the Jupiter real estate market, Palm Beach real estate market, Palm Beach Gardens real estate market, North Palm Beach real estate market, and the surrouding Palm Beach County area. Along with being a top producer in Jupiter real estate, Dylan's professionalism and expertise in luxury and waterfront real estate sets him and his team of real estate experts apart from the competition. For more information on Jupiter and Palm Beach real estate for sale, contact Dylan at (561) 951-9301.

Leave a Comment