The answer is like practically everything about real estate and thehomebuying process complicated.
The lower your score, the higher your risk of defaulting.
But the truth is,theres no one magic credit score that guarantees youll be approved for a mortgage.
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Wait, Whats a Credit Score?
And What Credit Score Is Needed to Buy a Home?
First things first:Acredit scoreis a number that tells creditors how likely you are to repay debt.
No Interest Til Almost 2027?
Balance Transfer = Credit Card Cheat Code
But you do not have just one single credit score.
You have three scores, one with each of the major credit bureaus: Equifax, Experian and TransUnion.
The scores are generated by FICO, a data analytics company, using information provided by each bureau.
FICO scores range from 300 (relax, theres almost zero chance yours is this low) to 850.
As of 2015, the average credit score was 695, according to ValuePenguin.
Lets say it all together now: Its complicated.
Applicants with a good score of 700-750 were denied 23% of the time.
Meanwhile, 91% of applicants with a score below 550 were denied.
Do Mortgage Lenders Look at All Three Scores?
It depends on the lender.
Some will just pull one score; others use two or all three.
If your lender pulls two scores, it will usually use the lower one.
If it pulls all three, your middle score will typically be used.
Can You Get a Mortgage if You Dont Have a Credit Score?
What if Im Applying for a Mortgage With a Spouse or Someone Else?
You could always refinance and add them as a co-borrower once they improve their credit.
What Other Factors Do Mortgage Lenders Consider?
Your credit score can absolutely make or break your program.
Here are some other factors theyll consider.
Debt
Lenders want to confirm you dont have too much debt.
Down Payment
Chances are, you wont need the traditional 20% down payment.
And some programs allow you to put down even less.
With these loan programs, the government guarantees lenders that theyll get paid even if borrowers default.
These are known as unconventional loans.
A conventional loan is a mortgage that isnt backed by the government.
That means banks have stricter criteria for approval.
Below are the minimum requirements for each throw in of loan.
Remember, though: These are just the minimum requirements that the government sets to back unconventional loans.
In the case of conventional loans, they are the requirements set by Fannie and Freddie to repurchase loans.
Your bank or credit union will often require a higher score.
Conventional Loans
If you qualify for a conventional loan, youll pay lower interest rates.
you might also often avoid paying an upfront mortgage insurance payment, which many unconventional loans require.
Conventional loans typically require a down payment of at least 5%.
Also, your monthly payment cant be more than 31% of your gross monthly income.
Minimum credit score:500 if you put 10% down; 580 if you put down 3.5%.
No down payment is required.
Minimum credit score:No minimum score is required by the USDA, but lenders usually require a 640.
Thats becauseyour interest rate is based in part on how risky youre considered as a borrower.
But if your credit score is between 620 and 639, your APR would be around 5.568%.
You may be thinking: So what?
Whats a measly 1.6 percentage points?
But how do you find out your credit score?
you’re able to improve your score.
Its not going to happen overnight, but these tips can help.
By increasing the amount of credit you have available, youll lower your credit utilization.
Think of all the money youll save in the long run.
Robin Hartill is a senior editor at The Penny Hoarder.
