Want to buy a House? Know your Credit Score

    Want to buy a House? Know your Credit Score

    Jan 12, 2021

    Check your Credit Score.

    Sounds simple but the truth is that the better your Credit Score the better Interest Rate you will get from a Lender on that new home you want to buy. Wondering what Credit Score you need to qualify?

    The minimum credit score you need to qualify for a mortgage in 2021 depends on the type of mortgage you’re trying to obtain. Scores differ whether you’re applying for a loan insured by the Federal Housing Administration, better known as an FHA loan; one insured by the U.S. Department of Veterans Affairs, known as a VA loan; or a conventional mortgage loan from a private lender:

    Conventional Mortgages

    Conventional mortgages are home loans that follow the standards set by Fannie Mae and Freddie Mac. They’re uninsured by any government agency.

    If your credit score is solid – most lenders consider FICO® Scores of 740 or higher to be excellent ones – you’ll usually be able to qualify for a conventional loan with a low down payment requirement and low interest rate.

    Conventional loans are typically best for those with good or excellent credit, as these loans require a higher credit score than an FHA loan.

    These loans tend to offer the most competitive interest rates and flexible repayment periods, such as 15- and 30-year mortgage terms.

    Minimum Credit Score Needed: At Quicken Loans, your credit score for a conventional loan must be 620 or higher. Various lenders have different requirements and may require a different score.

    FHA Loans

    FHA loans are insured by the Federal Housing Administration, making them less risky for lenders and, because of this, easier to qualify for than conventional loans.

    They offer down payments as low as 3.5% and low-equity refinances, which allow you to refinance up to 97.75% of your home’s value.

    FHA loans can benefit borrowers with lower credit scores or those who spend a significant portion of their income on housing. Current homeowners who are underwater on their mortgage – and could lower their monthly payment by refinancing – may also benefit from an FHA loan.

    Minimum Credit Score Needed: You’ll need a minimum credit score of 580 to qualify for an FHA loan that requires a down payment of just 3.5%. There is no minimum FICO®Score, though, to qualify for an FHA loan that requires a down payment of 10% or more.

    However, FHA loans are originated by private lenders, and these lenders will usually have their own minimum credit score requirements. For instance, the minimum FICO®Score for an FHA loan through Quicken Loans is 580.

    For a standard FHA loan, a minimum of one credit score is required to qualify. If your lender obtains all three of your credit scores, it will use the middle score for consideration. If you apply for a mortgage with your spouse, lenders will use the lower of the two middle credit scores.

    VA Loans

    If you meet the requirements, a VA loan, insured by the U.S. Department of Veterans Affairs, can be a smart financial move. That's because these loans don't require any down payment at all. They're also available to borrowers with lower credit scores.

    The difficult part is meeting those eligibility requirements:

    • You must be a member or veteran of the U.S. Military or a member or veteran of the U.S. Military Reserves or National Guard.
    • Spouses of military members who died while on activity duty or because of a service-related disability can also apply for one of these loans.

    You won't be charged for private mortgage insurance when taking out a VA loan, another benefit of these products.

    VA loans, though, do charge a one-time funding fee. This fee varies depending on your down payment and the type of military service you logged. For instance, if you are a member or veteran of the U.S. military and don't put up any down payment, your upfront fee will be 2.3% of your loan amount in 2020.

    Minimum credit score needed: The Department of Veterans Affairs sets no minimum credit score for VA loans. But like FHA loans, private lenders originate these loans, and these lenders typically have their own in-house minimum credit requirements. Quicken Loans requires that borrowers applying for VA loans have a minimum FICO® Score of 620.

    What Factors Go Into A Credit Score?

    It’s important to know your credit score and understand what affects it before you begin the mortgage process. Once you understand this information, you can begin to positively impact your credit score or maintain it so you can give yourself the best chance of qualifying for a mortgage.

    While exact scoring models may vary by lender, some variation of the standard FICO®Score is often used as a base. FICO® takes different variables on your credit reports, such as those listed below, from the three major credit bureaus (Equifax®, Experian™and TransUnion®) to compile your score. FICO® Scores range from 300 –850.

    From this information, they compile a score based on the following factors:

    • Payment history (35%)
    • Amount owed (30%)
    • Length of credit history (15%)
    • Types of credit (10%)
    • New credit (10%)