Did you know that 21.8% of the U.S. population has a credit score over 800? If this statistic relates to you, you’ll have no trouble getting a home loan with a low-interest rate.
However, as the statistic suggests, only a minority of people have this high of a credit score. So, what is a good credit score for those looking to buy a home?
Read our guide to find out.
What Is a Good Credit Score for Homebuyers?
Your credit score will affect the type of loan you receive and how much the interest rate is. Conventional loans will require a credit score as high as 640 while other loans, like FHA loans, take credit scores as low as 500.
Your credit score is a representation of how much of a risk a lender is taking on you. A high credit score shows that you have a good financial history. Because of this, you will receive lower interest rates.
Without a good credit score, you are seen as risky for a lender. To compensate for the risk, you’ll have to pay higher interest rates.
Types of Mortgage Loans
The four main types of mortgage loans are conventional, FHA loans, USDA loans, and VA loans. Anyone has access to a convention or FHA loan.
USDA loans are only for rural properties and have a guarantee backed by the U.S. Department of Agriculture. VA loans are for veterans and members of the military.
The credit score requirements for each of these loans vary. VA loans are the only type of loan that doesn’t require a credit score.
If you have a bad credit mortgage, you may still be able to get an FHA loan as the minimum is 500. If you have a lower score than 500, you should work with a credit repair service before taking out a home loan.
There are different types of conventional loans that take certain credit scores over others. For example, there may be a minimum of 620 to 640.
For USDA loans, the minimum credit score is 580, but they prefer something higher in the 640 range.
How to Improve Your Credit Score
Before affording a house, you may have to improve your credit score. The factors that go into how your credit score is determined are:
- Repayment history
- Account balances
- Length of time you’ve had the accounts
- How many times you’ve applied for credit
When you improve those areas, your credit score will increase. Do this by paying down your debts and credit card balances, don’t open new accounts, and pay your bills on time.
If you have any collections or credit issues, you should resolve those as soon as possible. They could be the reason for your credit score issues.
Do You Have a Good Credit Score?
If you have a good credit score, you can start applying for home loans now. If not, you may need to repair your credit to avoid high-interest rates.
Pull your credit report on your own time to check for any inaccuracies. The sooner you resolve your credit issues, the sooner you can get into your dream home!
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