One of the common thoughts is that you need a high credit score to buy a home. That isn’t true although it can help! For many, credit scores can be an issue. Not everyone has perfect credit, there are many with collections, high credit card balances or missed payments – even bankruptcies and foreclosures. Does this mean they will never be able to buy a home? No – not at all!
You can get a home loan with a credit score of 580 – maybe even lower. However there are many lenders that have their own requirements – so even if FHA allows a mortgage at 580, they may have an overlay with a minimum credit score of 620. If one lender has turned you down, talk to another – don’t give up right away.
Here are the common credit score requirements:
- Conventional/conforming: 620 minimum credit score
- FHA loans: 580 minimum score (3.5% down); 500 score (10% down)
- VA loans: No minimum score per guidelines, but lenders set minimums around 620
- USDA loans: 620 minimum, although some lenders want a 640 minimum
For many lenders, if your score is lower, you need to get an automated underwriting approval. This means you need your file to be approved by a Desktop Underwriting system or Loan Prospector – these are common underwriting programs for conventional, FHA and VA loans. USDA loans must go through GUS (guaranteed underwriting system). When you have a lower credit score, especially under 660, it can be more difficult to get an automated underwriting approval. You may need extra reserves – it can be a retirement account as long as you have access to it. It may also mean spending less – keeping your debt to income ratios lower.
If you know you have a lower credit score, it can help to start early, work with a loan officer that will help you get the best program for you. If your credit score is under 680, FHA may be a better alternative than a conventional loan.
Remember that time heals all – if you have filed a bankruptcy or had a foreclosure, you may need to wait a few years, but eventually you can buy a home. If you have had credit issues, keeping all your payments on time for 12 months can make a big difference. If you have high credit card balances, paying them down will make a big difference in your score – and it can happen quickly.
It’s best to know your credit situation before you are ready to buy – that way when you do find the home you want, you will be ready. Talk to your loan officer and get your mortgage approval so you are ready to shop – don’t shop before you have that mortgage approval!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
