What credit score to buy a house? In the mortgage application process, one of the most challenging criteria that lenders review thoroughly is your credit score, which can make or break the loan application process.
These digits can mean the difference when moving to your dream house or finding a rental. Individuals not having their credit score checked are not doing themselves a favor because it causes uncertainty for being uninformed.
On the web: What Credit Score Is Needed to Buy a House?
- What’s a good credit score to buy a house?
- Will it be enough in getting a new loan?
- What average score do I need in buying a house?
- Is there is a minimum score to buy one?
- Is a high credit score a great factor to help me get a deal?
- Do the interest rate and credit score have direct relationship?
These are only some of the questions that many want to find answers for regarding buying a new home and their credit score.
Credit Score Definition
FICO score or credit score is a three-digit number ranging from 300 to 850, representing someone’s credit worthiness, something that might indicate the likelihood of being approved for a loan or being able to pay the loan off, if approved. It means a higher creditworthiness for a higher score.
For example, you’re almost guaranteed to pay debts for having a credit score of 850. It will be the opposite for people with a FICO score of 300 – which is considered less likely to pay debts.
How do you calculate your FICO score?
Its formula is developed by the Fair, Isaac and Company, which has made the credit score components public. Some of the factors taken into account when calculating credit score are,
- Payment history
- Loan amounts, including the number of credit lines and balance on each
- New credit
- Credit history length
- Retail accounts, credit cards, mortgages and installment loans and other types of used credit
Payment history makes up 35% of the score, while 30% for the amounts owed. Your credit history length is 15% of the FICO score, and 10% each for new credit and credit types used.
Everything you need to check on and calculate your FICO score is in the report that contains the detailed history on how you’ve handled and paid for debts in the recent years.
If you have opened a new MasterCard or missed a payment on your VISA, you can see them in the report and all other things that you have purchased or spent on.
That is why it is important to secure a copy of this report before applying for a loan. You should know your FICO score so that you will also be able to fix any mistakes on it and that you can avoid unpleasant surprises.
So what score do I need when buying a house?
There is no one answer to this question. You will probably qualify if your score is high, such as 600 provided you’re buying a home within your budget and applying for the right mortgage loan to work for you. In some cases, having a 660 score might qualify you for a home loan.
Does it mean that a score lower than 660 won’t qualify you for a loan?
It does not mean that you won’t by having a score lower than 660. Mortgages, such as a subprime mortgage, are given to borrowers that have less than 660 credit score.
Some lenders will use other criteria, such as assets and income sources, either can override a bad or low credit score.
On the web: What Credit Score is Needed to Buy a House?
According to the experts, those who have a score of somewhere around 500 FICO score is the absolute lowest credit score to have if you want to buy a house. But it will be rare for borrowers to get mortgage for having this score.
Then, while it can be possible to get a home loan with a lower score of 470, you might first want to focus on improving it first before applying for a loan.
In most cases, you may want to wait before applying for a home loan if your score is below 620.
Before applying for a home loan, be sure to work on improving your credit score first to ensure you’ll have higher chances of being approved for it. You should also check that there are no discrepancies or mistakes in the report, and if there are, you should be able to fix them. Remember all these things when trying to figure out what credit score will qualify you for a home loan.
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