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September 30, 2024 at 4:37 pm #1008KikoffKeymasterSeptember 30, 2024 at 5:01 pm #1030KikoffKeymaster
When it comes to buying a home, your credit score plays a huge role. Lenders use this score to determine your eligibility for a loan, as well as the interest rates and terms you’ll be offered. The higher your credit score, the better your chances of getting approved with better terms.
Credit Score Requirements Based on Loan Type:
- FHA Loans: The Federal Housing Administration (FHA) are government-backed loans. They’re known for being more forgiving of lower credit scores. In most cases, you can qualify for an FHA loan with a credit score as low as 580, and sometimes even lower if you’re able to make a larger down payment (around 10%).
- Conventional Loans: For conventional loans, which aren’t backed by the government, lenders typically require a minimum credit score of 620. If your score is higher than that, you’ll likely be offered better rates and terms, but 620 is generally the cutoff for most lenders.
- VA Loans: If you’re a veteran or active-duty service member, VA loans are a great option. The Department of Veterans Affairs doesn’t set a minimum credit score, but most lenders prefer to see a score of 620 or above, with some willing to go as low as 580. This makes VA loans accessible for many borrowers with lower credit scores.
How Credit Scores Affect Interest Rates and Loan Terms
- Higher Credit Scores Lead to Lower Interest Rates: Borrowers with higher credit scores (in the 700s or 800s) tend to qualify for lower interest rates. For example, someone with a score of 760 might secure an interest rate below 4%, while a borrower with a score closer to 620 could see rates above 5%, or even higher. Over the life of a 30-year mortgage, that difference can add up to tens of thousands of dollars.
- Better Terms for Higher Scores: In addition to lower interest rates, a higher credit score can unlock more favorable loan terms. This might mean smaller down payments, fewer fees, or even avoiding private mortgage insurance (PMI) altogether, which can save you a significant amount of money.
Conclusion
When it comes to home loans, your credit score is one of the biggest factors that lenders consider. FHA loans are available to borrowers with scores as low as 580, while conventional loans usually require a score of at least 620. The higher your score, the better interest rates and loan terms you’ll likely receive. Before you apply for a mortgage, it’s worth checking your credit score and working to improve it if needed, as this could save you a lot in the long run.
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*First-month credit score impact of +28 points in a first month based on observed changes in Equifax VantageScore 3.0 for Kikoff users with starting credit below 600 who made at least one purchase with Kikoff Credit Account & one-on-time payment between Jan-2021 & Mar-2024. Late payments may negatively impact your credit score. Individual results may vary.
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