What FICO Score Is Required To Qualify For A Home Loan
Among the elements taken into account to determine whether you satisfy the criteria to get a mortgage to purchase a house is also credit score. Most of the lenders in our poll probably have minimal credit scores for which an applicant should be eligible for a house loan. Let us now all know, therefore, what FICO score is necessary for property purchase.
Though the cut-off credit score varies based on the lending company, the minimum FICO credit score for a conventional loan is 620. If a borrower has a credit score of 620 or higher and has fulfilled all other criteria stipulated by the lender, they may apply for a conventional loan—the kind of loan used for house purchase. However, you will be qualified for a better mortgage offer and appealing interest rates if your credit score is high.
How Mortgage Lenders Assess FICO Scores
The FICO values go from 300 to 850. This three-digit figure is meant to represent a numerical overview of your credit risk score—that is, your capacity to pay back the obligations accumulated by your credit history. Most of the lenders would still want you to have a FICO credit score of 620 or more and would be ready to lend at scores of 680 and higher.
Here is a basic overview of how lenders view borrowers in different FICO bands:
- 800 and Above - Exceptional. This credit range ensures borrowers the best mortgage interest rates and yields the best returns in the market almost every time.
- 620 to 669 – Good 670 to 719 – Very Good 720 to 799– Excellent. This could be described as a very good credit score range and such borrowers are also eligible to be offered the best loan terms and rates.
- The number ranges from 670 to 739 in the Good category - These borrowers offer low risk to institutions and are, therefore, welcomed with attractive FICO interest rates.
- 460 to 519 - Poor: It is commonly accepted, that credit scores between 620 and 669 are usually enough to qualify for a conventional mortgage. Subprime loans may be needed, if credit scores fall below 620.
- Things to note – mortgage lenders do not only consider credit score, credit score is not the only determinant in mortgage approval. They consider your credit report, income, assets, debts, and down payments in its wrap; not in parts. Nonetheless, a FICO score of 620 or higher will guarantee that you meet the baseline credit requirements for most regular home purchases or refinance loans.
What happens when one of your FICO scores is less than 620?
While borrowers with FICO scores of 620 and below may be pre-approved for a home purchase, they are subjected to subprime mortgages. Subprime mortgages refer to credit facilities given to customers who have been in the red or have had credit problems in the past.
Some key things to know about subprime mortgages:
- Most lenders need to manually underwrite the loan to offer it to the customer.
- For the budget car loan, interest rates will be much higher than the rates charged to those with good credit.
- It is common practice to have large down payments when engaging a construction contractor.
- Often there might be other charges and expenses that are incorporated under the loan.
Therefore, though subprime lending is an option that allows subprime credit borrowers to own homes, it has other challenges which include higher interest rates, extra costs, and more stringent loan conditions. This means that approval is not assured either, unlike for instance, for the applicants with FICO scores above 620 looking for a conventional loan.
Understanding the Steps You Should Take to Raise Your Credit Score for Homeownership
If you are determined to be a homeowner but your credit score drops below the required 620, you have to fix the problem and this can only be done by applying for a new credit.
Some tips to boost your score include:
- Hear all the bills on time – automatically if necessary.
- Finally, consumers should endeavor to reduce balances maintained on revolving credit accounts.
- This translates into reducing the number of credit applications that an individual can submit.
- Dispute any information on the credit reports you believe is inaccurate
- Subscribing to a credit monitoring service helps keep track of one’s score.
- Do not cancel credit accounts that are old and have which have been opened for a long time
If you are regular with your credits then certainly in 6 to 12 months you’ll see a good change in your credit score. Of course, everyone’s circumstances are unique but if a borrower wants to strive for something better, then getting a score of over 620 is not very far from the reach of any borrower, provided that the latter is willing to dedicate some time for reviewing his reports and paying all his credit obligations on time.
The Conclusion on Minimum FICO Scores
Although it is possible to attain a mortgage with the lowest credit score of 620, it is advisable to strive for a more expanded credit score to be well-positioned to secure a better loan deal and interest rates. Thus, good credit hygiene is something to be considered and incorporated while searching for homes and getting a loan. Take control of your credit score and show lenders how safe your company is to do business with them. This will, in the long run, prove worthwhile in terms of your mortgage expenses, as time progresses.
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