Will My Credit Score Prevent Me From Getting a House? | Trusted American Mortgage

Buying a home is one of the most exciting times of your life, whether it is your first home or the home you plan to raise your family in. It can be so fun to search through sites, go to open houses and imagine yourself moving into a brand-new space.

While it can be easy to get swept up in the excitement and adventure of buying a home, it is important to remember that there is a lot more at play behind the scenes. Even if you find the perfect home, certain things like your credit score can make your dreams come to a screeching halt.

1. What Exactly Is a Credit Score?

A credit score is a small number that has a huge impact throughout your life. Simply speaking, your score is a prediction of how your past credit behavior impacts your likelihood of paying back a loan on time. Your credit score follows you forever and can go up and down based on certain factors like paying bills (or not paying bills), opening credit cards and obtaining new loans.

The number of your score can range anywhere from 300 to 850, where 850 would be a perfect score and 300 is the lowest you can go. The higher your score, the better the chance that mortgage lenders will work with you to find a loan that fits your needs.

However, that doesn’t necessarily mean a lower score will prevent you from getting a loan. It might just have to be a different loan type or you might have to go through a few extra, and potentially costly, steps.

2. What Credit Score Do I Need for a House?

Different loans have different thresholds for credit scores. Conventional loans aren’t guaranteed or backed by government programs, which means they are usually suited for people who have a higher score and a significant down payment. Most lenders won’t approve conventional loans for people below a 620 credit score. If they do, you might be looking at higher interest rates, which can significantly impact your monthly payments.

FHA (Federal Housing Administration) loans are available to people who don’t have the money for a full down payment or for those who have a lower credit score. The minimum score for these loans is usually 580. VA loans are a bit more lenient as they don’t have a set requirement to be approved, but the higher your score, the easier the process will be.

3. How Can I Improve My Credit Score?

You should start by paying off any other outstanding debt and make impactful payments toward getting any large debts paid off. If your overall debt responsibilities go down, you will be able to take on more debt in the form of a mortgage, and that can be more attractive in a lender’s eyes.

In addition, you should be paying all of your bills on time and making sure you are paying at least the minimum payment on your credit card statements. If you fail to pay bills and you get behind for a long period of time, those bills could get sent to collections, which would have a drastic impact on the health of your credit score.

Are you on track to buy a home this season? Contact us to meet with one of our lenders.