When buying your first home, there are several factors to consider. One of the biggest factors is your credit history. The lowest amount needed for a credit score when buying a house will vary from loan to loan. However, all home buyers should understand certain guidelines, known as underwriting guidelines, in reference to their credit score when looking for a home loan. There are many types of loans with varying minimum credit scores needed. If you have a low score or none at all, there are considerations and other options available that do not require a minimum credit score.
Types of home loans and the minimum credit score needed
If you are looking to obtain a Federal Housing Administration (FHA) loan, underwriting guidelines do not specify a minimum credit score in order to obtain approval. However, there is a difference in the score that you receive for automatic approval or one that has been manually underwritten. Automatic approval can take days and you must have a minimum credit score of 620. Any buyer that falls below this minimum credit score has to provide additional information. Then, this case will need to be approved in a manual underwriting queue. The process can take up to 30 days to complete. Even with additional information, if you have a low score, there is no guarantee that you will be able to obtain approval for this type of loan.
Veterans Affairs (VA) loans are similar to FHA loans in that they both do not require you to have a minimum credit score. However, eligible veterans are the only people who can apply for this type of loan. The guidelines for this loan state that if your minimum credit score is under 620, your case will be placed in a manually underwriting process with additional documentation needed. There is no guarantee for approval when it comes to manually underwritten files with a low score.
The minimum credit score needed to apply for a conventional loan is 680. This minimum is needed because, in the event of default, this type of loan has no government backing against a bank’s loss. Also, conventional loans have a higher risk of default. When applying for a conventional loan, home buyers with a minimum credit score of 680 or higher can be offered interest rates and loan terms that are better than average.
Considerations when you have a low credit score
If you have a low credit score, it is still possible to buy a home. You will need to show that you have been financially responsible for at least two years. You can show financial responsibility by using nontraditional credit sources or your most current credit report. Nontraditional sources include utility bill payments and rental history payments. Once this information is shown, underwriters have the ability to extend the home loan offer.
For prospective home buyers that cannot provide a two year payment history, there are other options. There are mortgage companies that offer credit rehabilitation, which helps improve the buyer’s overall score. This improvement is achieved by using a plan to settle accounts, open new trade lines, and pay off any current debts. If a buyer chooses to go through credit rehabilitation, a home can be purchased within about six months.
Also, if you have a low credit score or don’t have one at all, you can always buy a house with cash. There will never be a minimum credit score needed when purchasing a home this way.
For more information about home loans and credit scores
Get in touch with a mortgage loan officer or experienced realtor if you are still concerned about your credit score. Professionals in the real estate and home loan industry will sometimes have additional information you may not be aware of.
Contact the Elite Real Estate Group in Amarillo with any questions or concerns you have in regards to buying a home. Give us a call today at (806) 337-0883 or Contact Us via email. You can also view our listings to see the homes we currently have available in the Texas Panhandle area.