Wednesday, March 15, 2017

What’s the Minimum Credit Score Needed to Get a Mortgage?

by Rebecca Lake

Buying a home takes more than just a big enough down payment or a steady income to get approved for a loan; you’ll also need a solid credit score. As

someone who recently went through the home-buying process, I’ve been schooled firsthand on how credit scores affect your odds of being approved. Before you approach the bank for a mortgage, read this to learn what kind of scores lenders are looking for.

Conventional Loans

A conventional loan is what most people think of when they think of a mortgage. This is a loan that’s backed by either Fannie Mae or Freddie Mac. The minimum credit score you’ll need to qualify for a conventional loan ultimately depends on how large your down payment is and your debt-to-income ratio.

At the low end, a borrower with a 620 FICO score could qualify for a Fannie Mae loan as long as the loan-to-value ratio is less than or equal to 75%. That means you’d need to pony up at least 25% of the purchase price for the down payment, assuming your total debt-to-income ratio is 36% or less. On the high side, you’d need a FICO score of 700 or better if you’re financing more than 75% of the purchase price and your debt-to-income ratio is closer to 45%.

One thing to keep in mind with conventional loans is that Fannie Mae is now using trended data to make lending decisions. Someone who’s paying their credit card bill in full each month is going to be viewed more favorably than someone who carries a balance but always pays on time. If you’ve got balances on your cards, you could help your chances of getting a loan by paying those debts down before applying for a mortgage.

FHA Loans

FHA loans are a great alternative for buyers who don’t have 20% or more to put down since they only require a 3.5% down payment. This is the route I took with my home purchase and in terms of the upfront cost, it was a good choice. My lender wanted to see a FICO score of at least 640 to get the loan, which wasn’t an issue, but I was told that I could still qualify even if my score was as low as 580.

So how is that possible? It’s pretty simple. To get a loan with a score of 580 I would have had to put 10% down instead of 3.5%. That would have added up to an extra $8,905 coming straight out of my pocket. The takeaway? If you’re hoping to score a low down payment FHA loan, aim to keep your score above the 640 mark.

USDA and VA Loans

The USDA and VA loan programs are two federally-sponsored initiatives that offer no-down payment loans to qualifying buyers. You can snag one of these loans if you live in an approved rural area or you’re a veteran as long as you meet the credit score requirements. For USDA loans, lenders prefer your score to be 640 or higher. With VA loans, you can go as low as 620 and still get the green light. That’s a plus if you haven’t been able to work on building your credit as much as you’d like.

How To Get Your Score Up to Snuff

Improving your credit often seems mysterious but it’s really not. Prior to buying my home, I employed the tactics that any well-seasoned credit expert recommends: I paid off my credit cards, I resisted opening up new lines of credit and I always made sure to pay my bills on time to avoid black marks on my credit history. If buying a home is one of your financial goals, take our quick two-minute assessment to understand just how vital your credit really is.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Re/Max Preferred Choice is embracing these new mediums of communication to better serve our customers. We have created our company to better place important information in your hands to help you with your housing needs. For a personal consultation please contact me at my
Website.

It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.

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