With COVID-19 changing the minimum credit score requirement for so many lenders, it’s left many of us are wondering what credit score is even good enough to buy a house right now. Let’s dive in.
The Housing Market in 2021
To start, the housing market has gone through some major changes in 2021. It is a seller’s market throughout the majority of the United States. This means there are more buyers to buy homes than there are homes to buy. Which can put buyers at a disadvantage if they’re not properly prepared. Having a good credit score can benefit a home buyer in many ways. For one, they can pre-approved for a mortgage loan with the best interest rate and terms available. Another being able to receive any available grants or programs that have credit score requirements. Having a good down payment, money for closing costs, inspections and otherwise are helpful. But without a good credit score, you may still be left in limbo.
What Do Lenders Look For?
To make a long story really short, lenders are looking for the likelihood of you defaulting on your loan in the next 24 months. Your credit reports and credit scores are how they determine that. They review your current accounts, student loans, inquires, personal information and more. COVID-19 left a lot of people without jobs while dwindling their savings accounts to make up the difference. Now lenders want to be sure that a borrower will be able to pay back their loan, after seeing how it affected loans that were in progress or just approved. This could mean they want to see a lower debt to income ratio, money set aside for the next few mortgage payments and more. You want to be sure that your credit score is good enough to buy a house, but that you also have a rainy day fund set aside.
What Credit Score Do You Need to Buy a House Now?
It will depend. Different lenders require different minimum credit scores, and that credit score will also vary depending on the type of loan you’re looking at getting. Some lenders are approving loan applications for borrowers with 580 credit scores looking to get an FHA loan. While others may require a 660 for the same loan. The higher your credit score, the better your odds of getting approved, regardless of lender or loan type. If you want to get your ducks in a row, follow these 5 steps:
- Make sure all loans on your credit report are in good standing. This is huge. If lenders determine whether or not to lend you money based on how you repay your debts, the last thing they want to see is unpaid debts.
- Keep all revolving accounts below 30%. Pay. Those. Credit. Cards. Down. As we stated in a previous post, credit utilization (or the balances on your credit cards) makes up for 30% of your credit score. One third. It’s a big deal! The lower the balance, the better it looks. It shows you’re responsible.
- No collections! Collection accounts can generate a denial faster than a millennial can google. Again, this will vary depending on the lender. Some lenders will allow for a certain amount depending on the type of account. But things like unpaid utility bills will virtually always guarantee a denial.
- No judgements. As of 2018, judgements no longer appear on your credit report, but that does not mean your lender will not find them if they’re out there. Any outstanding judgements will be found during a title search and must be satisfied before your loan can close.
- Check your FICO score before you let a lender do it. Since inquiries can affect your credit score, and they don’t fall off until 24 months, you want to be mindful of how many you’re racking up. Part of your due diligence is going to be asking the lender what their minimum credit score requirement is. That way you know before you go in what your chances of getting approved are. Checking your FICO score before stepping foot into a lender’s office will give you a leg up. Which credit monitoring service is the most reliable? You should know by now we’ve got you covered. We have compared credit monitoring services for you so you can just pick whichever one helps you best. Find a credit monitoring service here.
Remember, buying a home is a life goal for most people, so it’s not something you’re going to just walk into with a poor credit score and no money saved. Good credit shows responsibility. No lender is going to approve an application for someone who does not show they can handle their finances responsibly. Get your ducks in a row and keep them there.
Buying a house is a huge step, so it makes sense that your lender requires huge commitment. Is your credit score good enough to buy a house now? That depends on the lender requirements, your credit score, and credit history.
If you need help getting your credit ducks in a row so that you can be mortgage ready, give us a call 833-752-7334 or schedule an appointment online now.