Many consider that buying a new house is a dream come true. But with a challenging financial situation, it is a dream too far to achieve. But with the advent of housing loans, buying a new house could be within reach. But the question is, do you have a good performance when it comes to managing your loans? Or, are you the person whom financial institutions are aware of that reduces the amount of loan you can have. This credit performance is indicated by your credit score.
Your Credit score defines how capable you are in managing your finances. It determines your future performance in prospective loans that you will acquire. That is why, if you’re planning to buy a new house, your credit score will play a very important role. Thus, you need to maintain it.
But nevertheless, your credit score does not imply that the limitation applied for every loan you get is the same. Loan approvals are based on different requirements. Hence, this blog may give you useful ideas for you to give value to your credit score.
What is the minimum credit score required for a home loan and different mortgages?
In order to know if you are qualified to apply for a housing loan, you need to know what credit score you need. Your FICO score is the basis for loan grantors to evaluate your qualification. There is a minimum FICO score designated for a particular loan:
For Federal Housing Administration (FHA) Loan: The credit score requirement for this is 580+ when you opt to 3.5% of the total payment as the downpayment. But your credit score is between 500 – 579, then you need to pay 10% of the total amount as your downpayment. Through this, it allows loan applicants with lower credit score to have chances of getting housing loans at lower risks. Meanwhile, for VA Loan, it requires a higher credit score amounting to 580 up to 620 depending on the evaluation of some lenders. Moreover, USDA Loan requires a minimum credit score of 640 and above. For FHA 203K Loan and Conventional Loan, you are expected to maintain a credit score as good as 620 and above.
Based on the specified qualifications, if you’re buying a new house for the first time, the most practical choice is the FHA loans. But, due to low credit requirements, this kind of loan is often branded as a “bad credit home loans.” However, despite such branding, the provision is strictly enforced. Loan applicants with a credit score of below 500 were not approved to have the housing loan.
Furthermore, you can choose to pay the downpayment either 3.5% or 10%. The higher amount of your initial payment it lowers the credit score required. But, if you’re not yet capable of paying that much, but you have a higher credit score somewhere between 620 – 720, you don’t need to pay such a big amount. Thus, this is how valuable your credit score would be.
Hence, if you do not know about your FICO score, you can check it before the loan application on the various websites for free. There are various companies that would give you regular updates on any change in your credit score.
Prudent financial management is vital in achieving your dreams such as a new home. Maintaining a good performance in managing your debts can lead you to more convenient financial options. Keeping your high credit score will bring you to farther heights. In other words, be responsible and smart enough in getting loans. This will be your ace in having your dream house.