Credit checks are necessary whether you want to buy or rent a property or lease a car. When it comes to buying a house, having a credit score is crucial to your eligibility. Your FICO score not only determines if you qualify for a mortgage but also affects your loan’s terms. While there is no ideal credit score for buying a home, it is essential to understand how it affects the process.
Your FICO score is a critical factor that mortgage lenders consider when calculating your interest rates and fees for your mortgage. They will also assess your debt level, assets, property type, and income to determine the best loan for you. There is no fixed credit score required to qualify for a loan because these factors vary.
Most loan types have a minimum credit score requirement, though sterling credit is not necessary to get a mortgage, especially if you have other high-value assets in your name. The minimum credit score requirements are 620 for conventional loans, 500 for FHA loans, 640 for USDA loans, and 700 for jumbo loans. The credit score requirement varies for VA loans.
Generally, you’ll need at least a 620 credit score to get a mortgage to buy a home. You may still qualify for a loan even if your credit score is lower, but you may need to meet additional conditions to qualify for government-guaranteed loans. If you have a credit score of 750 or higher, you’ll qualify for the lowest PMI costs and best rates if you can’t afford a 20% down payment. However, you will still pay interest even if you have a credit score above 800.
If you have a credit score of 600 or less, you won’t qualify for a traditional loan due to a history of accumulated debts not repaid on time. You can expect to pay higher PMI and interest rates if your credit score is between 600 and 650. You may also need a larger down payment to offset the risk to the lender and the cost of the mortgage. You could still qualify for a mortgage with bad credit, but you’ll pay more in the long term. You can also improve your credit score or find a co-signer with a better credit rating to get a loan.