The mystical credit score. Even industry experts get confused by credit scoring reasonably often. So, imagine the concern from someone who may buy only a few homes in a lifetime. Plus, it’s even tougher on a first time home buyer. That’s why lenders often receive the question, “What credit score is needed to buy a house?”
Other popular frequently asked questions include required down payment, monthly payment, time to close, and cash to close. Let’s focus on the credit score requirements needed to buy a home.
What Credit Score is Needed to Buy a House?
This is a loaded question because the answers can vary widely. Why, because the loan programs differ from each other in many areas. Plus every borrower has a different scenario. Let’s compare a hypothetical situation. One borrower with a 620 credit score may qualify better than someone with a 680 score. Most would not believe this, but what if I told you that the 680 borrower had a foreclosure one year ago. The 620 score buyer has perfect rent history and just some medical collections. That’s one example of when a 620 credit score is approved over a higher score. Remember, even though all lenders start with a credit score, there is much more to the picture than that. We understand this!
As mentioned above, guidelines vary among the loan types. So, let’s dig into the differences among them.
What Credit Score is Needed to Buy a House With No Money Down?
Again, the answer varies, but luckily there are options and none require perfect credit! Let’s discuss no money down program requirements. These programs include VA, USDA, and down payment assistance options.
Minimum Credit Score for VA Loan
VA loans are created to allow our military, Veterans, and surviving spouses affordable access to home financing. The Veterans Administration does a great job at this and so does OVM Financial. Fortunately, not everyone needs an 800 credit score to qualify. Actually, it is possible to obtain a VA loan with a 580 credit score. Do remember, it depends on the situation because a 580 credit score may have nothing but collections. Conversely, a buyer may have a 580 score, but have documented on-time rent history, asset reserves, and re-established good credit. Borrower two has a much better chance.
What if a qualified VA borrower is looking to make home improvements to a home? Our VA renovation loan has a minimum score of only 640. This is up to 100% financing of the purchase price and up to $75,000 in renovations.
Furthermore, VA loan credit score requirements allow for having multiple VA loans at once. That means having two VA loans at once and possibly a lower credit score.
Minimum Credit Score for USDA Loans
USDA loans are one of the best loans to buy a house with no money down. In addition to this benefit, it also has flexible credit guidelines, income limits, and most properties in the U.S. are eligible. On top of that, the mortgage insurance and funding fee are the cheapest among government loans. That means it is an affordable housing program that meets the needs of today’s buyers. Plus, it isn’t just for first time buyers! First of all, not all lenders offer USDA guaranteed loans. Plus, the minimum USDA credit scores vary. But, the OVM Financial minimum credit score is 620 and we do allow a manual underwrite for buyers who do not receive a USDA automated underwriting approval.
What Credit Score is Required for Down Payment Assistance
Down payment assistance provides buyers with funds to bridge the gap between the purchase price and first mortgage loan amount. Plus, remaining assistance funds may be used towards closing costs too. Down payment assistance program guidelines vary based on each state’s programs. For instance, the NC Housing Finance Agency requires a 640 credit score. Whereas other options such as SC Housing and VHDA have a 620 credit score option. If down payment assistance sounds like a solution for you, give an OVM Financial loan officer a call. Keep in mind that to obtain the DPA funds, the same lender must close both the first mortgage and DPA. If your lender does not offer this product, give us a call.
What Credit Score is Needed to Buy a House With FHA
FHA home loans provide an excellent option for today’s buyer looking for the following benefits:
- Flexible credit requirements
- Low down payment
- Combine with down payment assistance
- Gift funds allowed for down payment
- Higher debt to income ratios
- Options to keep collections open
- Gift of equity purchase from family
Flexible credit requirements mean that a credit score could be as low as a 580 score. Like mentioned above, the lower scores depend on other compensating factors. These factors could include using own funds for down payment, low debt to income ratio, asset reserves, & verifiable rent history. Like all loans, the higher the score, the better the chances. But, FHA loans have a long history of helping those looking to become homeowners.
What Credit Score is Required for Fannie Mae & Freddie Mac?
Today’s Fannie Mae and even Freddie Mac are different from the conservative days. Now, Fannie and Freddie allow up to 50% debt to income ratios. Plus, these along with VA are the most flexible for buyers with student loan debt. Then, there are the low down payment options which also offer lower mortgage insurance as well. These programs are known as HomeReady and Home Possible. As far as the lowest credit score we allow for Fannie Mae or Freddie Mac, it is 620. Although we must receive an automated pre approval through their systems to have a chance of closing on a 620 score.
Contact OVM Financial Today
Hopefully, you see that not every scenario is the same. Additionally, perfect credit is not required. It doesn’t hurt to contact us for qualification. Worse case is you know where you stand. Plus, you receive tips on how to become a buyer in the future!