What Credit Score is needed to buy a house?
Credit score, one of the most important criteria considered by the lenders in the mortgage process. When you are planning to buy a house getting a handle on your credit score is the essential step that is necessary to think about early. The three tiny digit that can difference between yes and no or can tell you whether you are moving to your house of dreams or again to the overpriced rental home. There are many different credit score models and it is very important for you to know your credit score. If you don’t know your number then the riskiness can hang over you like dark clouds.
Credit score can impact your ability to get mortgage. What is the average score needed to buy a home? Am I eligible for a home loan? What will be the interest rate? What will be the best deal I can get? What benefits can I get if I raise my credit score. There are so many question that comes to our mind and most of them are unanswered.
There are so many factors that we need to understand about credit score while we are planning to buy a home:
What is a Credit Score?
A credit score is a number that lies between 350-850 scale created by FICO commonly known as (Fair Isaac Corporation) FICO score. The credit score is not just tells you the ability of getting the mortgage but it tell the overall picture of your financial ability. It represents person’s creditworthiness like, if a loan is given to someone whether he is able to pay it off or not. The higher the number the higher the creditworthiness.
The higher credit score is considered to be lower risk to lending to you. Higher credit score shows that you can manage your credits wisely and able to pay them on time. If your credit score is almost 850 is almost a guarantee that you will pay the debts where a person with 300 score is highly likely who miss payments.
The score is calculated by FICO while the specific remains secret so that no one can game system. The formula takes the following factors in descending order of importance:
1. Payment History
2. Amounts owed
3. Length of credit history
4. New Credit
5. Types of credit used
Generally payment history and amounts owed plays an important role, it make up upto 30-35% of the total score while the credit history upto 15% and rest two factors includes 10% each. These weights can vary for each borrower.
All these information are mandatory to calculate a person’s credit score. If you miss your credit card payment, visa, master card or you forgot to pay your bills it will appear on your report. So whenever you are planning for a loan it is necessary that you should be aware of your report and learn your credit score.
What is a good credit score for buying house?
Majority of people who are looking for buy a home needs a mortgage loan. There are tons of types of mortgage from fixed rate to adjustable rate from government sponsor to private programs. The minimum credit score needed to buy a house depends on the lender. Different lender have different level of risk.
Let’s say your credit score is higher than 660 and you’ll qualify. Because it shows you can afford it and the mortgage you are applying make sense. While with lower credit score you may not qualify. If we talk about lowest credit score to buy a house is 500 FICO score. With this score it is very difficult to find mortgages. In these cases lender rely on other criteria like reliable source of income or solid assets.
Your credit score plays an important role with the interest rate. Here is how interest rate might affect your credit score:
As much as you score the more chance to get the best result. Consider it as a rough guide. Depending on individual circumstances it may affect your credit score on smaller or larger scale. Having a score below 660 can make difficult in taking out mortgage. How much it effect depends on the loan you are looking for and the rest of your financial condition. Make sure you work on making less mistakes on your credit report and get the best result out of it.