Generally, a credit score of 620 or higher will get the best terms for a mortgage. A higher credit score can make the underwriting and approval process faster and easier, as well as get a better interest rate. A higher credit score means that you are less risky for the lender to give money to. It shows that you have always paid back previous loans as well as covered your bills and expenses.
What if I have a credit score below 620?
For those with lower credit scores, home ownership can still be an option. You may need to have more funds available for a down payment, get a higher interest rate on your loan, or have someone co-sign on the loan with you.
Another option is using the FHA loan, a mortgage that is backed by the Federal Housing Administration. For those with credit scores above 580, a down payment of 3.5% is required. For those with credit scores between 500 and 579, a 10% down payment is required. This program is designed to make home ownership an option for those with lower credit while still working for lenders.
How do I improve my credit?
If you want to get the best financing terms, it can be helpful to take some time to improve your credit before applying for a mortgage. Small steps like paying your bills on time and maintaining a zero credit card balance can improve your credit over time. If you have adverse events on your credit report, such as a bankruptcy, you may need to wait longer for those to be off your credit report. Fortunately, this also allows you more time to save up for a downpayment. Overall, this makes you much less risky to lenders and more likely to get approved for a mortgage with great terms.
