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What Credit Score Do You Need to Buy a House?

Written By: Travis Carter : MLB Residential Lending: NMLS 7587: Loan Options

Minimum credit score to buy a house

Want to know what credit score you need to buy a home in 2020?

It is natural to be concerned about your credit score and the possibility of being denied. If you want to know what credit score you need to buy a house, we hope this article is helpful.

Credit is a complex topic and many mortgage professionals that have been in the business for 10 years or more still do not fully understand the scoring models. The credit score is impacted by a number of factors like payment history, inquiries, balance to high limit ratios, and length of history. The good news is, you do not need a great credit score to buy a house.

Check out this article from Credit Karma about understanding credit  

What Credit Score Is Needed to Buy a House in 2020

To make this long story short, the minimum score required is 580. Of course, we are always coaching our clients to increase their credit scores to get the best possible terms. With a 580 credit score it is possible to buy a home with an FHA loan. An FHA loan only requires 3.5% down and allows a borrower to finance the closing costs. To learn more about FHA loans, click here.

Although the minimum credit score is 580, other factors play a role. First, you need to have a credit history. You will need to have been paying on 3 reporting accounts for at least a year. Exceptions to this rule can be made if we can verify rental payments made on time for 12 months or alternative tradelines like a utility bill or insurance payment. If your credit score is 620 or higher, you could qualify for additional loan programs that do not require a down payment at all.

Many clients that meet with us for the first time have a score below 580 but worth our help, are able to increase their credit scores by up to 50 points. One simple trick to increasing a credit score is to pay down credit cards. I have reviewed many credit reports where the score was low only because of the balance on the credit cards. If your average credit card balance is higher than 50% of the card limits, there is a simple trick to boosting your credit score. Pay down the balance to 15% or less of the high limit. In some cases this alone can increase credit scores by 50 points.

What is the Minimum Credit Score Needed for a Home Loan?

The minimum credit score needed to purchase a home is as low as 555 with conditions. Most lenders will require a 580 or higher to qualify.

While the minimum score is technically 580, even if your score is below 580, you should not worry about reaching out to one of our mortgage consultants. We will work with you to increase your credit score and get you in to a home as soon as possible. Whether you are looking for a VA home loan, FHA home loan, USDA home loan, or a Conventional home loan, we can guide you through the home buying process. Our goal is to put you in the best possible position for success. Even if you currently qualify, we will do our best to help you improve your credit score.

Another factor people do not consider is the impact of paying off collections. It is natural to think paying off a collection will help your credit score but this is not always True. Some collections will actually decrease your credit score after being paid off. The reason this occurs is the date of last activity. If an older collection is paid off, the date of last activity because more recent which can decrease your credit score. Before you decide if you should pay a collection off, be sure to get a free credit consultation before you take any action.

Minimum Credit Score Chart

FHA Loans – 580

USDA Loans – 620

VA Loans – 620

Conventional Loans – 620

Schedule a free credit consultation now

Why is My Credit Score Different Depending on Where I Look?

The issue comes up often. You open Credit Karma and see a credit score of 700 but when you apply for a home loan that bank tells you your credit score is lower. Don’t worry. Banks are legally required to provide a credit score information disclosure when you apply. This form will tell you what credit scores are being used and where the credit scores are from. Although most lenders use a FICO score, there are alternatives. Often you are seeing a different scoring model when you review your credit on a free platform. 

On the Credit Karma app, which I also use, they provide the VantageScore model score. Whichever model you or your lenders use, your credit score is actually three different scores, each based on your credit reports from the three bureaus (Equifax, TransUnion, and Experian). Depending on the type of credit you are applying for, the lender may find one score model more beneficial than another. Because of the different scoring models, you can fee betrayed when your bank tells you a different score than you see on Credit Karma or Credit Seseme. 

Your credit score may vary slightly depending on the credit agency it comes from and the scoring algorithm used. Don’t worry if the score comes in lower. The credit score is still an accurate depiction of your credit history. If you find an error on your credit report, make sure you bring it to the attention of your lender so they can take the right steps to improve your credit rating. 

Focus on Having a Positive Credit History

It can be frustrating to see a score lower than you expected. My best advice would be to focus on what you can control. There are three factors listed below that have helped thousands of people improve their credit scores. If you do these things, you will see your credit score improve too. 

  • Pay down your balances to 30% or less of the high limit
  • Always pay your bills on time
  • Avoid multiple credit inquiries/applications

If you or someone you know is interested in buying a home or have questions about credit, feel free to give us a call. Our staff is always available to help.  518-324-5544.

Plattsburgh Mortgage Team

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