Your credit score is a crucial factor in determining whether you qualify for a home loan or not. This is important because you’ll need a solid credit score to secure a mortgage from a bank. Your financial history is what determines your FICO credit score. Banks won’t lend money to you if you’re missing payments or defaulting on credit payments.
If you have an elevated credit score, you can get better interest rates and lower down payment. Those with bad credit may not even qualify for a mortgage, and if they do, the rates may be higher with a higher down payment. In light of the COVID-19 pandemic, you’re safe if you have a higher credit score because credit score requirements are rising among some lenders.
To know your credit score, go to https://www.goodcredit.com/ and find out what’s impacting your score and how to improve it.
What minimum credit score do you need to purchase a home?
The minimum credit score you need to own a home in 2020 is determined by the type of mortgage you wish to have. The requirements differ with each lender. Let us look at the various types of mortgage loans and the minimum credit score required.
- Conventional mortgages
Conventional mortgage loans are home loans that follow standards set by Freddie Mac and Fannie Mae. They are uninsured by any government agency and require a FICO score of 740 or higher. These are best for people who have excellent credit scores and can qualify for the loan with a lower down payment and low interest rates.
Different lenders have different requirements and may require different credit scores. That’s why it’s recommended you shop for more than one lender with rates that are close to what you’re looking for.
- FHA loans
FHA loans are covered by the government, making them less risky for lenders and making them easier to qualify than conventional home loans. FHA loans will benefit you if you have a lower credit score. The minimum credit score needed to qualify for this loan is 580, and you pay 3.5% of the down payment. Note that there’s no minimum FICO score for an FHA loan with a down payment of 10% or more.
A minimum of one credit score is needed for a standard FHA loan. However, if your lender has acquired all three credit scores, they will use the middle score for consideration. If you’re shopping for a mortgage with your spouse, the creditors will use the lower score between the two middle scores.
- VA loans
To be suitable for this loan, you must be a member or veteran of the US Military Army, National Guard, or Military Reserves. If you meet all the requirements that qualify you to take a VA loan, then it’s a smart financial move for you. This is because there’s no down payment needed, and they are available if you have a low credit score.
Your dream of owning a home in 2020 can be a reality when you’re aware of your credit score.
