We all know that your FICO® score is crucial to the home buying process; however, many buyers aren’t sure what is required to get the loan they need.
Recently, CNBC shared that the average national FICO® score is at an all-time high of 706! Fortunately, that high of a score is not necessary to qualify for a mortgage. This means that Americans are working to improve their credit scores and building strong financial futures.
With interest rates as low as they are, it is a great time to purchase a home. According to Fannie Mae and the Q3 2019 HOME Survey by the National Association of Realtors, around 60% of Americans agree that now is a good time to purchase a home.
What this means is that we are now seeing home buyers with stronger credit scores entering the housing market and the distribution of closed loans has now increased (see graph below):But wait, this doesn’t necessarily mean you don’t need a score over 700 to qualify for a mortgage. According to Experian:
FHA Loan: Ideal for those with less-than-perfect credit and may not be able to qualify for a conventional mortgage loan. Down payments vary depending on your credit score. If your credit score is between 500 and 579, 10% down is required. If your credit score is 580 or above, only 3.5% down is required, but you can put more down if you’d like.
Conventional Loan: You may be able to get approved for a conforming conventional loan with a credit score as low as 620, but some lenders may require a score of 660 or higher.
USDA Loan: There is not a set required score, but most USDA lenders require a score of at least 640.
VA Loan: Lenders set their own minimum credit and income requirements for VA loans.
There are several loan types available to buyers with lower credit scores. If you would like some help to determine the next steps when determining your credit score, please feel free to contact us!