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Whats a Good Credit Score to Buy a House in 2016?

Most people know that a good credit score can help you when applying for a loan, but not everyone understands just exactly what qualifies as a “good score”. A recent survey by Digital Risk illustrates just how disconnected “consumers” really are when it comes to this. Considering how often Americans borrow money, you would think we have a better handle on how the process works!  But then again the credit bureaus do an excellent job at hiding the formulas they use to determine our scores so I guess there is a valid reason for this confusion. (sort of)

Can You Buy?

What is a Good Credit Score?

In order to answer this, we need to explain a few basics first. There are three main credit bureaus that mortgage lenders obtain information from when you apply for a loan. Their names are Experian, Equifax, and TransUnion. Each bureau provides the lender with a credit score rating on you. Each of these scores can vary between 0 to 50 points on average. Since each bureau is independent from one another, there is no limit as to how much they can vary by.
What this means is that you actually have three different scores to account for. One could be exceptional, and the other two could fall into the good credit score category.

Middle Score Wins!

Mortgage lenders will use the “middle” of your three credit scores as your “qualifying credit score”. If someone else is applying for the loan with you, lenders will take the lower “middle” score between the two of you.

Understanding the “credit score range” in 2016

 

Credit Score Range
Credit scores can range from 300 all the up to 850.

Minimum Credit Score Requirements

Now that you understand the general scoring range, lets look at things in more detail. It’s important to understand that lenders have have predetermined minimum credit score requirements for each one of their loan programs. This means that they cannot provide a loan to someone who has a score lower than the minimum required, even if you have a million dollars in the bank.
(Smaller ‘community banks’ occasionally have leeway on this if there are enough compensating factors.)

Let’s look at the most frequently used mortgage programs to get an idea of what minimum credit scores lenders are requiring in 2016.

CONVENTIONAL = 620
FHA = 580*
USDA = 640**
*Some Lenders can go as low as 500, however a credit score below 580 requires a 10% down payment instead of the standard 3.5%.
**Some lenders can go as low as 600, however compensating factors must be provided.

Credit Score Rating Breakdown (generic)

Keep in mind that each lender can have a slightly different rating system. Here is how Experian breaks down credit score categories.

Exceptional = 800 +
Very Good = 740 – 799
Good = 670 – 739
Fair = 580 – 669
Poor = 579 and lower

Hopefully you have found this article helpful.

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CanIBuyIt
CanIBuyIt is dedicated to informing homebuyers on their financing budgets.

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