What Should My Credit Score Be?

By
Real Estate Agent with Keller Williams Realty - Topsfield, MA 92593-B

This question comes up frequently with buyers. I found this article at Realty Times that offers great information to everyone who wants to better understand their creditworthiness and may be looking to purchase a home now or in the near future. I do know that the credit rating companies have changed their algorithms to include increasing debt as a negative. 

 

What Should Your Credit Score Be to Buy a House?
 

What credit score do you need to get a home loan? While specifically, it can vary, there are certain things you should know before you apply for a mortgage to ensure you’ve put yourself in the best possible financial position.

Factors Impacting Your Credit Score

Before you explore specific loans, pull your credit report. You can look for errors that may need to be corrected and get a better idea of what you can do to improve it.

The factors that play a role in your credit score include:

• Payment history: This is the main factor of a credit score, making up about 35% of your score. Your payment history is simply whether you pay your bills on time or not. Any creditors you have will report your activity every month to major credit bureaus. One or two late payments probably won’t have a big impact, but a pattern of late payments will.
• Debt: The amount of debt you owe across the board makes up around 30% of your score. Debt is also called your credit utilization ratio, and it looks at how much debt you’re using versus what’s available to you.
• Credit age: Making up around 15% of your score is credit age. The longer you have accounts on your credit history the better, as long as they’re in good standing. If you have old accounts, keep them open if possible because this will affect your average credit age.

Other factors that are relevant in your score are your account mix, which is the type of credit accounts you have, and credit inquiries. Credit inquiries are pulls of your report that lenders do before extending financing.

Your credit score is important not only because it determines whether you get financing for a home, but also the interest rate you’re offered.

The following are typical ranges for credit scores:

• Anything below 580 is considered very poor• A fair score is one ranging from 580 to 669
• A good credit score might range from 670 to 739
• An excellent score is between 740 and 799
• Anything 800 and above is considered exceptional

Conventional Loans

If you’re applying for a conventional loan from a bank or a similar type of lender, you will usually need at least a 620 to qualify.

Conventional home loans follow Freddie Mac and Fannie Mae's standards.

While 620 is the minimum, having that score doesn’t mean you’ll be approved for a home loan. An excellent score is usually considered 740 and above, and with an excellent score you’ll likely not only qualify for a conventional home loan but you’ll also get a competitive interest rate and you may have a lower down payment requirement.

VA Loans

The U.S. Department of Veterans Affairs insures VA loans. They’re available to certain servicemembers and veterans of the U.S. Military, as well as spouses of military members who died while on active duty.

The minimum credit score for a VA loan is likely to be around 620, although this can vary, and there’s no set minimum score.

FHA Loans

Insured by the Federal Housing Administration, FHA loans are less risky for lenders so you may find it’s easier to qualify. The minimum score for an FHA loan with a down payment of 3.5% is 580. If you’re paying at least 10% for your down payment, there’s no minimum required credit score.

If you have an FHA loan originated by a private lender, each will have its own minimum requirement for credit scores.

Other Factors Lenders Consider

Yes, your credit score determines whether your quality for a home loan and also what your interest rate will be, but other factors are relevant as well.

Lenders will look at your income to ensure that you can afford your mortgage payments if you get a loan. They’ll also look at your existing debt in comparison to your income.

The more of a down payment you can make, the more likely you’ll qualify for a lower interest rate.

Lenders also want to know if you have savings if your income ends for a period of time. You should be able to show that you have enough money saved to cover at least two months of your mortgage payments.

Finally, employment history is relevant, as well. You should show that you’ve worked in the same job or at a minimum the same industry for at least two years. The longer your steady work history, the better from the perspective of a lender.

If you have a low credit score, you could potentially still get a loan, but you’re a riskier borrower. You’ll have to offset that risk, which means you’ll have to have a larger down payment, and you’re also going to pay a higher interest rate.

Posted by

I pray that God our Father and the Lord Jesus Christ will be kind to you and bless you with peace

2 Thessalonians 1:2

 

Doug Dawes REALTOR®, AWREP, LMC

Broker Sales Associate

KELLER WILLIAMS REALTY - Topsfield/Newburyport

49 Main Street
Topsfield, MA 01983
 978-887-3995  ~ Office
 978-270-3037  ~ Cell
 DougDawes@KW.com

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Roy Kelley 10/22/2020 01:00 AM
Topic:
Lending / Financial
Location:
Massachusetts
Groups:
New Hampshire - Real Estate and Life in The Granite State!
MA REALTORS
FOR SALE BY OWNER - MARKETING(FSBO)
Boston Real Estate
Boston Area Real Estate
Tags:
conventional
va
fha
loans
debt
buyers
credit score
mortgages

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Show All Comments
Rainmaker
4,482,576
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Doug, this is a great subject for a post, and it DOES matter, as if their score is too low, they need to work on bringing it up to the acceptable range.

Oct 15, 2020 08:06 AM #1
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Good Morning Joan Cox with the changes the credit companies have made I've seen my credit score decrease simply because we took a HELOC loan to do needed work at our home. 

Oct 15, 2020 08:14 AM #2
Rainmaker
2,281,689
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Doug Dawes - this is very helpful information for buyers to know.

Oct 15, 2020 08:41 AM #3
Rainmaker
136,457
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Doug Dawes , as usual you have written yet another informative and highly important blog. Great information for buyers to know.

Oct 15, 2020 08:43 AM #4
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Credit scores are an area most people do not understand, imo, Grant Schneider 

Oct 15, 2020 10:25 AM #5
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Hi Rocky Dickerson 

Yes, very important to buyers and important for the rest of us. Recently I check my score and it had dropped. I found out it was because my debt increased due to a HELOC we took out for work on our home.

Oct 15, 2020 10:27 AM #6
Rainmaker
3,573,165
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Doug,  I seem over the years credit scores as low as 400 and lots up to 800 now.  Thing people are not spending that must this year.

 

Oct 15, 2020 11:24 AM #7
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Yes, consumer spending is down and savings are up. With rates this low people are anxious to purchase Will Hamm 

Oct 15, 2020 03:15 PM #8
Rainmaker
3,467,373
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Doug great post hope the buyers are reading and heading, Endre

Oct 15, 2020 10:44 PM #9
Rainmaker
6,036,633
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is imprtant information to share with prospective home buyers.

Take care, be safe and have a great day.

Oct 16, 2020 07:03 AM #10
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

This is a constant thing people need to be reminded of Endre Barath, Jr. 

I couldn't figure out why my credit score had dropped as I haven't had a late payment on anything in 15 or 20 years. I found out the algorithm had changed and because I used my HELOC to make needed repairs to the house it increased my debt and my credit score got lowered. That's the only real debt we have. 

Oct 16, 2020 07:59 AM #11
Rainmaker
907,924
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Yes, it is important information Roy Kelley 

Thank you for the reblog

Oct 16, 2020 08:00 AM #12
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