Buying the first house is a big move for anyone unfamiliar and without prior knowledge of mortgage types, credit scores, and other financial procedures. The best way to buy a house is to find out the needed credit score for the perfect mortgage and consistently work towards it.
If you’re wondering what is the minimum credit score or the minimum down payment needed to buy your first house, you’re in luck! The answer might surprise you.
What credit score do you need to buy a house in 2020?
Optimistically speaking, having a credit score of 740 is ideal for getting favorable terms like lower interest, bigger loan limit, and also faster approval.
The minimum credit score, on the other hand, would be 580 for a basic FHA loan. Juggling from the minimum to the ideal 740 might just give you the nudge needed to boost your credit score even further before taking a mortgage.
What is the easiest mortgage to qualify for?
If you’re looking for the fastest approving mortgage, this really depends on your available credit score or the type of mortgage provider you choose to get your loan from.
When it comes to the minimum credit score requirement, the FHA loan would be the easiest mortgage to qualify for. However, the low requirements come with certain limitations like the loan only being applicable for basic housing and not for rental properties, primary residences, and vacation homes.
The three mortgage types
There are three mortgage types to choose from but one of them is a special mortgage that can only be approved under special circumstances.
There are three different mortgages with different credit score requirements.
- Conventional mortgages
- FHA Loan
- VA Home Loan
Just to be clear, the government does not secure conventional mortgages or conventional loans. These types of mortgages are given by private lenders but there is an exception.
Both the Fannie Mae and Freddie Mac are government-sponsored private lenders so if you’re for a little more security with a conventional mortgage, pick one of both.
Here are a few things to keep in mind when choosing a conventional mortgage:
- Low down payment and low-interest rate
- 15 to 30-year mortgage terms
- FICO®Scores of 620 required
Key takeaway: Conventional mortgages can be used for properties aside from housing. This includes rental property, primary residence, or even a vacation home.
FHA loans, otherwise known as Federal Housing Administration loans, were created for the general public as the government’s way to provide a bridge between those with poor or no credit score and the housing they deserve.
This type of loan is insured and less risky. They are also much easier to qualify for compared to conventional loans.
Here are a few things to know about FHA loans:
- Down payments as low as 3.5%
- Helps current homeowners’ problems on their existing mortgage
- FICO®Scores of 580 required
Note: If you’re wondering what type of problems current homeowners might be experiencing, this could refer to additional renovations or extensions.
Here are a few things to watch out for:
- Different lenders might have different credit score requirements
- Standard FHA loans require a minimum of one credit score
- Applying with your spouse means the lower credit score will be the determinant
Key takeaway: The advantage of an FHA loan is that despite a high debt-to-income ratio or even no credit at all, you might still be able to apply for a mortgage.
VA Home Loans
The U.S. Department of Veterans Affairs insures VA Home Loans and are regarded as the loans with generally the best deals on the list. Although this loan has amazing benefits, there are only two ways to get it.
Here are a few advantages of this loan:
- No downpayment required
- Lower average interests
- Available to people with low credit scores
- No charge for private mortgage insurance
Here are a few things to watch out for:
- Private lenders may vary in minimum credit score requirements
- May include a one-time fee
- To hasten the process, you must have a FICO®Score of 620 onwards
Key takeaway: In order to apply for this loan, you must have served or are currently serving the U.S. Military, the Military Reserve, or the National Guard. The other way to get this loan is if you are a spouse of a deceased military member.
How can I improve my credit score?
Good news! If you aren’t too happy with your credit report, there are a few ways to increase your credit score.
If you’ve already made the decision to buy a house, you’ll have to move fast and try the following methods for a quick fix.
Clarify credit report
Check your credit report for any mistakes that could be the reason for a lower credit score. If you see issues, you may want to dispute the inaccuracies with the bureau associated with the error.
Ask a family member to help you out
If you have a family member with a good credit standing and they agree to add you as an authorized user of their credit card, you can use this as the measurement of your credit score.
Oh yeah, if the primary owner of the card makes a payment, your credit score gradually goes up as well!
If you aren’t in too much of a hurry and don’t mind gradually scaling up your credit score, there are long term fixes that can help you solidify your growing credit score.
Pay bills on time
A simple on-time bill payment could actually boost your credit score after a while. If you have a difficult time paying your monthly dues on time, try setting a reminder on your phone or calendar, or if it is available, set up autopay so you don’t even have to think about it!
Fix your credit utilization ratio
A credit utilization ratio talks about the amount of debt you’ve incurred in comparison to your credit limit.
Slowly paying off your debt and leaving more credit room untouched lets you gradually build a cleaner credit score.
If you’re aiming for just the minimum credit score to buy your first house, you’ll need to have at least 580 to qualify for an FHA loan. If you lack in the scoring department, don’t worry; apply the short term and long term techniques to fix your credit and work towards your first house.
Build your credit score just how you would your first house. Planned. Prepared. Patient.