Do you have a client who is considering buying a new home in Florida and is not sure if they have the credit score required? One of the most common questions you probably receive from clients is what credit score is needed to buy a home. While there is no “one size fits all” answer to this question, today we give you the 4-1-1 on credit score basics, the score your client needs to buy a home, and how getting pre-qualified before they begin home shopping will help them understand their personal financial situation and home buying power!
Helping your client understand credit scores
Your client may have pulled a personal credit report, been offered a free credit score by their credit card company, or told their score when applying for another type of loan. And, they may have wondered, “Why is my score always different?”
You can start by explaining that there are three credit bureaus - Experian, TransUnion and Equifax. Each uses their own algorithm, and they may receive different information from creditors, which results in credit scores varying across the three bureaus.
There are also different scoring models. When your client is qualifying for a mortgage to buy their dream home, lenders look at the FICO® score, which is different from what your client sees when they pull their own consumer credit report. You can assure your client that this doesn’t mean there is anything to worry about – different criteria are looked at for different scoring models, including things like their payment history, credit history, amount owed, and new credit.
When qualifying for a mortgage, lenders use the mid score as the qualifying credit score. Simply put, if the three credit bureaus are reporting three different numbers, the mid score is the one in the middle. For example, if the scores reported by the three bureaus are 660, 654 and 622, 654 is the score used to qualify your client for their mortgage. If only two bureaus are reporting scores, then the lower one is used; and if only one bureau is reporting, then that score is used.
It's important that your client understands that aside from helping them qualify, a higher credit score typically means your client can get a lower interest rate on their mortgage, which means they’ll have a lower monthly mortgage payment (or be able to purchase a higher priced home).
Your client may ask, “What is the best way to know what my qualifying FICO® mid score is?” You can advise them to get pre-qualified with a Highland Homes Preferred Lender, such as Home Solution Lenders, Inc.
Does your client know what credit score is needed for a government mortgage loan?
If not, you may want to start with the basics. Your client should know that there are three primary types of government-backed mortgage loans – FHA, VA and USDA loans. Each loan program has its own requirements from the government, and lenders often have their own requirements, also known as overlays, that also must be met. Home Solution Lenders, Inc. gives the scoop on each type of government loan and score requirements in case you need a refresher:
- Federal Housing Administration (FHA) loans are insured by HUD and issued by an FHA-approved lender. FHA loans are popular because they require as little as 3.5% for the down payment. With 3.5% down, FHA requires a minimum score of 580, but it is very challenging to get a mortgage approved by underwriting with this score, which is why Home Solution Lenders, Inc. generally sets the benchmark at 620.
- VA Home Loans are available to eligible service members, veterans and surviving spouses. Private lenders provide VA loans, with the VA guaranteeing a portion of the loan. VA Home Loans require $0 down and do not have a minimum credit score requirement, instead requiring lenders to evaluate your client’s entire financial profile. This means they may get an approval with a lower score; however, HSL still sees 620 as the general benchmark.
- USDA Guaranteed Loans are backed by the US Department of Agriculture, and are only available on homes located in eligible areas as defined by the USDA, for buyers who fall within household income guidelines. The USDA loan program also has no down payment or official minimum credit score requirement, but again, HSL typically needs a 620 credit score to get underwriting approval.
When your client is building their dream home in Florida with Highland Homes, we are looking for a minimum credit score of 600 in order to write the purchase agreement, and, if necessary, we’ll enroll them in a credit quick-fix program to boost their score to where it needs to be to close on the mortgage.
Tell your client what credit score is needed for a conventional mortgage loan
Conventional mortgage requirements vary by lender. These loans are not backed by the government, so there is no government requirement though most lenders follow Fannie Mae/Freddie Mac guidelines, which require a minimum 620 credit score for fixed-rate mortgages, and a 640 for adjustable-rate mortgages. Home Solution Lenders, Inc. requires a 640 minimum credit score for conventional home loans, regardless of the type.
If your client has a lower credit score, what can they do?
First, they need to get pre-qualified! As mentioned, their FICO score is different from their consumer score, so getting pre-qualified is how they’ll know what score lenders are using to qualify them. Advise your client to talk to a lender about their options – a lower score does not necessarily mean they cannot buy a new home in Florida. Every situation is different and things such as their savings, debt-to-income ratios and overall credit history strongly play into qualification and in some cases can compensate for a lower credit score.
Next, if their score is not quite where it needs to be, Highland Homes can help them enroll in a credit quick fix program if their score is between 600 and 619, or a credit restoration program if their score is below 600. We’ll work together to help your client achieve their dream of homeownership!
If your client wants to learn more about getting pre-qualified with a Highland Homes preferred lender and to start shopping for their new home in Florida, tell them to contact our New Home Specialists by calling us or emailing us today!
Highland Homes has been building quality new homes in Orlando, Tampa Bay, Lakeland-Winter Haven, and beyond since 1996 and appreciates providing value to Florida REALTORS® and your clients. To discover the benefits of selling with Highland Homes and to pre-register your clients, visit HighlandHomes.org/Realtors.