Your credit score is one of the most important things a lender considers when deciding your eligibility for a mortgage loan. Pull your score and credit report well in advance of attempting to get a mortgage to see if you meet minimum requirements. The credit score you need to get a mortgage depends on the requirements of each specific lender, but it's helpful to have an idea of the minimum score likely to lead to an approval.
Minimum for a Traditional Loan
According to Inside Mortgage Finance, your score should be at least 730, when going for a mortgage. If you want the best loan rates and packages, work on raising your score to that level, or higher. The requirements for getting a favorable mortgage package were less restrictive prior to the housing market crash of 2008, but now lenders want to see a strong credit score in combination with other factors (like a 20 percent down payment and proof of income). Keep in mind that you may still get a mortgage loan with a score below that level, but it may not offer you the best rate.
Minimum FHA Loan
An FHA loan, which is backed by the federal government, may not require you to have a stellar credit score to get reasonable rates. Cecala states that the average score for an FHA loan is about 690, compared to 730 for a standard loan. If you get a federally-backed FHA loan, the lender may have more lenient requirements when it comes to a down payment on the home, as well.
When determining if you're eligible for a mortgage loan, the lender commonly pulls all three of your credit scores from Transunion, Experian and Equifax (the major credit bureaus). The lender then takes the middle score when determining if you meet the requirement for a mortgage loan. So for instance, if your three scores are 730, 650 and 700, the lender commonly goes by the 700 figure.
Boosting Your Score
If you don't think you have a high enough score to get a mortgage loan at the moment, put your plans on hold for a few months, and work on improving it before you apply. You have a number of options for boosting your score. For one, you can pay down your credit card balances. The lower your credit utilization ratio, the better. Your credit utilization ratio is your credit card balances, divided by available credit. You should also start paying your accounts on time, and dispute errors on your report, before approaching a potential lender.
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