What is a Good Credit Score to Buy a House?

By
Real Estate Broker/Owner with Southern Living Realty Partners TN Lic# 266926

Today in this video, we're going to talk about the credit score that you need in order to buy a house in order to qualify for a mortgage, because that's an ever changing number. Check it out. Hi, I'm Rhonda Burgess, and I'm a real estate broker here in the Nashville, Tennessee area, and I am a former mortgage underwriter originator, closer, funder. When it comes to mortgage, I've done it all. Let me let's talk about credit scores for a minute.

Let's go there. You know, I've done other videos before where I talk about your credit score that you need to buy to in order to get a mortgage. Right now, in this current environment, that's an ever moving target, and I'm going to tell you why. You'll see like for a FHA loan, they say you don't there's no there's no minimum credit score. Yes, there is. It's not a minimum credit score from FHA. It's a minimum credit score from the lender.

The lenders, the banks, the brokers, everybody, the people who actually lend the money, they have an overlay. Meaning they require a certain credit score. In order to do your loan. Normally, I can tell you right now, you need a 640, you really need a 660 to be quiet, to be. To be OK, to at least get an FHA mortgage. There are some lenders and they're few and far between who will do less than a 640, but you going to take a hit on the interest rate.

Meaning if you look at online, you see an interest rate, let's say it's 3.0% percent. You're going to be at 3.5%, you're going to be at 3.75%. You may be in the 4% when your credit score is below their minimum threshold, their normal minimum threshold.

So if they require 660 and you're at a 620. You're going to take a hit. You're going to take a hit. And also what you need to understand is when you take that hit, they're going to hit you twice, they're going to hit you from the front and they're going to hit you from the back. What I mean is, like I just told you, your interest rate is going to be higher. OK, so don't be calculating your payment on no 3% percent.

Like I said, you probably will be at 3.75%. You may even be at a 4%. But also because you have a lower credit score, you have to have a lower debt to income. Your back end ratio is normally shorter, meaning so like let's say normally on an FHA loan, let's say you sitting at a 700 credit score on an FHA loan. Right. So the front end ratio is 29% percent normally.

And that's 29% percent of your gross. And then the back end, meaning your principal, interest, taxes, and insurance, and mortgage insurance plus all of your debts can't be no more than 41% percent of your income. But listen, when you have a lower credit score, they shorten the back end. So instead of 41% percent, it may be 36% percent. It may be 38% percent depending on the lender. So this is why it's so important to get your credit score right before you even get started, because, see, you go on online and you doing these mortgage calculators you like, OK?

OK. Interest rates today was 3% percent, OK? And so you're over here calculating on 3% percent. And so in your mind and on that little calculator online you have come up with. Oh I can, I can afford $300,000. I can afford $300,000. OK, so you looking online. You go on to you go to my home scout app and you pick out your favorite properties that are $300,000, $298,000 and $290,000 and all this stuff.

OK, but when it's all said and done. The issue is your credit score wasn't as high, you didn't reach that minimum. You don't have a 660 score or higher. You don't have a 700 score or higher because read the fine print on a lot of stuff. It'll say you got to have a 700 or 720 credit score. But anyway, you don't have that high of a credit score. So your interest rate is higher, so that brought down how much you buy. So you're not at $300,000 no more. You're at $270,000 ok.

Then once they shortened that back end ratio on you and show you where they say that everything all in there and your debt can be no more than 36% percent - oh you down. You're looking at $250,000 or $225,000. Seriously, your interest rate, your interest rate and everything will be impacted by your credit score. I can't go over this enough how important it is for you to get your credit score and get your credit right before you even start this process, because there's nothing worse than getting all excited, thinking you can buy $300, $400, $500, whatever it is, you are all excited.

You drive through these neighborhoods and everything and, you can't buy nothing. And especially in my market here in Nashville. We went from $300,000 to you can only buy $225,000. Ooh it's fixing to be a real dogfight. Because you're going to be in a townhouse, you're not going to be in a house. Or you going to be in a condo and it's going to be really, really tight. We're going you're going to have trouble finding something in that price range that you're going to like that is going to work for your family. So this is why you need to get your credit score right and know what the minimum credit scores are for the different types of loans.

OK, now, I talked about the FHA loans in the last segment. OK, we're going to go about conventional. There are some 100% percent conventional loans, but normally conventional requires you to put at least 5% percent down. There are some of Freddie Mac and Fannie Mae have some 3% percent down - 97%percent products.

They also have some 100% percent. But again, you got to have a higher credit score and a lower debt to income ratio to qualify for those.

So while you're working on your credit score, what you also need to be working on is paying that debt down. And as you pay the debt down, that will help your score increase.

And finally, let me talk about the Va loans, which I'm a veteran, and so I've used my VA loan twice now. The VA says again like FHA that they don't have a minimum credit score, but normally on a VA loan, you're looking at a 660 or higher.

Also, I know several lenders that will go down to a 620 and there's not a huge bump on the rate because on a VA loan, they can only charge you so much. OK, because they protect the veterans from being price gouged. OK, but still, you want a 660 score because they can have they can have those overlays on a VA loan too they just may not be as high as on an FHA loan or on a conventional loan, but they will have those overlays too. So if your credit score is too low, you still may take a hit on the on the debt to income on a VA loan.

Again, my name is Rhonda Burgess and I'm a real estate broker and underwriter here in the Nashville, Tennessee area. If any of this information has helped you, please consider subscribing to the channel and hitting the like button, because this helps the video get distributed to more people who may be looking for help about qualifying for a mortgage and buying their first house and all that good stuff. We're just trying to spread the love around here.

I'd be glad to refer you to the mortgage people that I use. Again, please subscribe. Please consider subscribing to the channel and thank you and have a blessed day.

 

Posted by

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Rhonda Burgess, Broker

615.554.0832

 

Comments (4)

Carol Culkin, ReeceNichols
ReeceNichols Real Estate - Overland Park, KS
Overland Park Residential Real Estate

First, let me thank you for your veteran service Rhonda. Secondly, this was a very informative piece. Good job explaining the interest reate effect with different scores and debt to loan ratio.

Aug 20, 2020 11:14 PM
Rhonda Burgess

Thank you Carol!  I always have buyers asking what is the credit score needed to qualify and so much of it depends on the debt to income ratio.

Aug 20, 2020 11:27 PM
Realtyna Inc
Realtyna - Newark, DE
Realtyna- MLS RETS Integration software & services

Hi Rhonda Burgess, great video and blog! I think this is going to help a lot of people. I definitely learned something.

Aug 21, 2020 02:05 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great infromation, thanks for sharing.  I hope you have a great day.

Aug 21, 2020 03:22 AM
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Will check out the video and so much goes into financing... many believe just the credit score is the end all. More on the list of what you need from debt ratios or job security that impacts what I can buy, if I can buy Rhonda Burgess 

Aug 21, 2020 04:41 AM

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