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Written by: Laurie Taylor
If you are in search of purchasing your dream home, learning what your credit score is can give you a better understanding of whether you can qualify for a mortgage loan and how much interest rate will you pay. Keep in mind that mortgage loans are quintessential for future property buyers since they can’t, for the most part, afford to pay the house with cash upfront.
Although lenders will look at your savings, debt, and income when making decisions, your credit score is most probably the most critical factor in verifying whether you get rejected or approved for financing. For that reason, it is essential to determine your credit score now and then so that you can measure the overall condition of your financial health .
So, if you are searching into property refinance for an existing mortgage or wish to purchase a house soon, determining your credit score must be on top of your to-do list. In this post, we’ll walk you through what credit score is needed for buying a house.
What Is A Property Mortgage?
Before anything else and before we go deeper into purchasing the house of your dreams, let us layout and back up precisely what a house mortgage is. In a nutshell, a house mortgage is a loan that is mainly intended to fund the purchase of a property.
A mortgage is perhaps the most significant loan you’ll ever take on. For that reason, mortgages have various parts, and they can, at the very least, last up to 30 years. A house mortgage is consist of an insurance, taxes, and down payment.
It is quintessential to remember these parts before deciding on whether you can manage or deal with this much debt. When you have finally decided to leap, you will need to learn and understand what it is going to take to buy your dream house.
What Credit Score Is Required to Purchase A Property?
The minimum score required to purchase a property is not set in stone. It can alter and become different now and then particularly after and during a recession when the real estate market is on a slump. It is not common for mortgage lenders to employ stricter limitations on loaning money when the market is on a downturn.
In the event of a market slump, credit scores of at least 720 are likely to get rejected for mortgage loans. However, on the brighter side, the housing market has dramatically improved since 2008. That is why lenders have abated the minimum credit scores that they are requiring. Also, the minimum scores depend on what kind of mortgage plan you are applying for.
Furthermore, the credit score needed to buy a house also depends on what credit scores lenders are requiring. According to the FICO score, the most prominent credit scoring model in the market, ninety percent of lenders use this to assess your score and decide whether to reject or approve your loan application.
However, keep in mind that mortgage lenders can increase the minimum Credit Score based on other several factors. For example, the down payment you are putting down or your income. These factors also influence your interest rates. All in all, the minimum credit score to purchase a property is at least 600.
House-Buying Tips
If you don’t meet the average credit score to purchase a home, don’t fret. There are other ways that you can take to buy your dream house. Here are some tips to be eligible for a house mortgage.
FHA Loan
A Federal Housing Administration Loan (FHA) is a mortgage that is insured by the government and provided by mortgage lenders included in the program. Federal Housing Administration loans have lower credit score requirements compared to other types of mortgage loans. Therefore, borrowers can apply or appeal even if they have a foreclosure or bankruptcy on their credit report.
Another big advantage of this mortgage loan is that rather than requiring twenty percent down payment, it is, believe it or not, possible to purchase a home with at most 3.5 percent down payment.
Think About a Co-signer
Another way to qualify for a house mortgage is to consider a co-signer. Getting assistance with a home mortgage might be an excellent idea if you have not enough credit score or poor credit score to foster a credit score at all. Getting the help of a co-signer with robust credit score can dramatically boost your chances of getting an approved home mortgage.
A co-signer is primarily an individual who is taking communal responsibility for the mortgage. In this way, mortgage lenders get the assurance even if you default on the mortgage. However, just ensure that you get someone who has an excellent credit score. Also, learn how their credit history can be affected if you delay payment.
Be Organized
Mortgage lenders would want to see your financial documents when you are applying for a mortgage loan. This is particularly true when you have a poor credit score. In particular, you need to prove that you can pay your debts and bills on time, and save money.
Also, you need to include your income tax returns for the past year, W2s, bank statements, list of your debts, and statement for retirement or investment accounts.
Takeaway
If you are planning to buy a home sooner or later, get your credit history ready. If it does not result in the minimum, you must work on boosting it up before you begin talking to mortgage lenders. But even if you have a bad credit score, there are other ways for you to qualify for a mortgage loan.
Boosting your credit history is not something that you can do in one night. However, it is possible if you take the right actions. Getting rid of errors, paying off debts, and avoiding large purchases can help in ensuring that your credit score is home mortgage-ready. Also, freeing space of your credit line can have a positive impact on your credit score.