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The Credit Scores You Need to Buy a Home

The Credit Scores You Need to Buy a Home

Mortgage lenders check your credit history before approving a home-buying loan. Your credit scores are crucial to getting the amount you want to borrow at a good interest rate.  

Your income vs. your debt, your payment history, the length of time you’ve had credit, new credit you’ve opened, and the types of credit you owe (such as student loans or consumer debt) are all calculated in a valuation system known as credit or FICO scores.

FICO scores range from 300 to 850, but because mortgage loans are so large and have such a long payback period, most lenders require scores between 580 and up, depending on the type of loan.

“Conforming” loans are guaranteed by the federal government, including FHA or VA loans. They require a minimum score of 500 to 520 and any scores lower than 580 typically most lenders will not handle for the risk. If you’re married or have a co-borrower, their scores must meet the same requirements.  

“Conventional” loans are federally sponsored by Fannie Mae or Freddie Mac to be packaged into securities bundles and sold on the secondary market. These loans traditionally have a slightly increased interest rate compared to FHA or VA loans but less in fees and expenses for the long term buyer. 

For any loan, the larger the down payment the better option of not having private mortgage insurance payments which can add to your monthly payment. Credit scores also impact interest rates. The better the score, the better the rate.