A typical credit score for a mortgage application varies per type of loans you qualify for, but this guide will help you navigate through the process.
If you’re thinking about buying a house in the next few years, this guide in improving your credit score will improve your chances in the getting the approval.
The Federal Reserve reports that 90% of U.S. mortgages taken out in the first quarter of 2019 were by home buyers with a score of at least 650, and 75% has a score higher than 700.
FICO score that matters
Your FICO score is the first thing a mortgage lender will check when seeing if you qualify for a loan. While there are many factors involved in qualifying for a loan, your credit score is the most important.
For 2019, median credit score for mortgages taken out this year are typically 759, as reported by the Federal reserve. Only 10% of mortgage borrowers had scores below 647.
Different Types of mortgage Loans:
- FHA loan– 580+ credit score (typically geared toward new home buyers.
- VA loan– 620+ credit score (some lenders can even go as low as 600)
- USDA loan– 640+ credit loan (some call it Farm loans)
- Conventional loan– 620+ credit score (20% down payment)
Some other variations of loan programs are available depending on different lenders, comparatively the basis for FICO scores are the same.
Minimum Credit Score Requirements
Most of the first-time home buyers believe they do not qualify; however, FHA loans are more flexible and have low requirements needed. Typically, if you have a poor credit and don’t have that much for a down payment this is a good start.
Conventional loans are typically having a 20% down payment requirement but it can vary depending on loan programs.
Your bank is not the only option for taking a loan. Search for mortgage bankers or mortgage lenders in your area to help you with your options.
Check your credit score!
Before beginning the process of applying for a mortgage loan is to check your FICO score. A credit score for a mortgage application may vary per credit reporting companies. Use your free option first then use it as basis to improve from there.
You can start with a Free service that gives you free credit report once a year. Other options are available below:
Improve your Credit Score
There are different ways of improving your credit score and improve your chances of getting a mortgage loan approved at a good interest rate.
Easy start would be to pay your bills on time and in full. Payment history covers 35% of your FICO score. This is the most used measure of creditworthiness. Auto-pay with your banks online apps are great tools in managing your payments.
Develop the habits
Credit score for mortgage loan are in a range, therefore focus on the fundamentals on improving the habit of paying all your bills and credit cards on time every time.
Credit utilization ratio is 30% of your credit score. Lower or eliminate credit card balances as low as possible. This will show that you can afford the mortgage in the long run.
Higher credit card balances mean lower credit score. Pay all balances every month and on time to boost credit score in a few months.
Also, keep your oldest credit account active and open and make sure that you are not over-applying for new line of credit. Length of your credit history is 15% of your score.
Take note that improving your credit score is long term process. Paying your bills on time and lowering your credit usage are long-term habits. Patience is key.
Sources:
https://www.cnbc.com/2019/07/15/median-credit-score-mortgage.html