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Are you looking to buy your first home, but think you won’t get approved for a mortgage loan? When determining your loan eligibility, a mortgage lender will check your FICO credit score, in addition to other factors. Your credit score is very important, but it does not have to be as high as you may think.
Many first-time home buyers are hesitant to apply for a mortgage loan, because they assume their credit scores are too low to qualify.
Minimum Qualifying Credit Scores for a Mortgage
The good news is, the typical minimum score for a Florida Housing Administration (FHA) loan is 580.
If you have a score of at least 620, you may qualify for a veteran's VA, FHA 203K, or a conventional loan.
If you have a score of at least 640, you may qualify for a USDA loan.
Because FHA loans have low credit requirements and require just a 3.5% down payment, buying your dream home can soon become a reality. FHA loans are backed by the Federal Housing Administration, and while the FHA won’t issue your loan, they will insure it in the event you default on the loan.
How Do I Get My Credit Score?
Prior to applying for a mortgage loan, make sure you check your FICO credit score. You can use a few reputable websites such as Credit Sesame and Credit Karma to get your score for free. Once a year, you can also get a copy of your free credit report from all three credit bureaus by visiting www.annualcreditreport.com. This is a great tool for you to check your Experian, TransUnion and Equifax reports, however, they will not include credit scores.
What Else Do Lenders Consider?
- Lenders will also look at how much debt you currently have. The less debt you have, the better, as lenders are more willing to approve loans to borrowers who demonstrate creditworthiness. But, carrying a lot of debt will tell lenders that you are a risky borrower.
- If you have bad credit, you may be able to compensate for it by demonstrating a history of on-time payments, a low debt-to-income ratio and long employment history with your current employer.
- Your credit score also plays an important role in determining the interest rate you will pay, but just because you get approved for a mortgage loan, it does not guarantee you will get a good deal. Having high credit scores will give you the opportunity to get a lower interest rate and decreased closing costs, which means lower monthly payments!
A score between 680 - 739 will not affect your rate, as this is the average for homebuyers.
A score above 740 is great and will give you access to the best rates possible.
How Can I Better My Credit Score?
There are some steps you can take to increase your credit score and be on your way to purchasing your first home!
- It’s crucial that you bring down your credit utilization, which accounts for 30% of your credit score. Pay down your balances as much as possible on all your accounts.
- Don’t use more than 30% of your available balance. By doing this, you will also help to improve your debt-to-income ratio.
- You can also ask a family member or close friend to add you as an authorized user on one of their credit cards. This will add their account’s credit history to your and boost your score. Make sure that this person has made on-time payments on the account and has a low credit utilization, otherwise, you could end up worsening your score!
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