- Although if you are going to buy a house in cash it is not necessary that you have a high credit score, it will determine the conditions and the approval of a mortgage
The credit score is that report that shows financial institutions how fit you are to pay a debt. Although you do not need to have one directly to buy a house, it is necessary for you to process your mortgage loan.
In the event that you are going to need financing, your credit score is one of the most important factors that lenders consider when applying for a mortgage. And it is not just a matter of whether or not you qualify for the credit, but that it also influences the loan conditions.
The higher your score, the lower the interest rates that will be imposed on you, and the better the terms for which you will be qualified before any financial institution. If what you are looking for is to understand what the ideal score is to buy a house, the reality is that the decision will depend on the type of loan you are looking for.
According to Bankrate research, Federal Housing Administration (FHA) loans, conventional loans, and jumbo loans vary in the credit score needed to buy a home.
Bankate explains that you most likely need a credit score of at least 620 to qualify with most lenders. In the event that your loan is from the Federal Housing Administration (FHA), a low score such as 500 may be accepted.
What we want to explain to you is that each financial institution will specify the credit score necessary for you to be approved for a mortgage loan. For conventional loans, it will be 620, for FHA loans it will be 500, with a 10% down payment, and 580 with a 3.5% down payment.
For USDA loans, granted by the Department of Agriculture, 640 points are required, for VA loans, backed by the US Department of Veterans Affairs, 620 are needed, while for larger loans of the real estate market, 700 points are requested.
Regarding how credit scores influence interest rates, that decision will also be determined by each lender, however, sometimes a difference of a few points in your credit score can affect your monthly payments.
“A low credit score can make it less likely that you’ll qualify for the most affordable rates and could even lead to a denial of your mortgage application,” Bruce McClary, a spokesman for the National Foundation for Credit Counseling, told Bakrate.
“It’s still possible to get approved with a low credit score, but you may need to add a cosigner or reduce the total amount you plan to borrow,” he concluded.