What Credit Score Do You Need to Buy a House in 2022?

Your credit score is the deciding factor for making or breaking your house hunt, it also helps the lenders determine your interest rates and other extra costs. So you need to understand finances and know what credit score is required to own a house.

In this article, we have given a compiled list of the ideal credit scores for different types of loans. This information will help you know how your credit score influences the home-buying process and the steps to improve your credit score.

Minimum credit score to buy a house

The minimum credit score depends on the type of mortgage you want.

FHA loan

A minimum credit score is 500. If your credit score is low then the best option for you will be an FHA loan. A score between 500 and 579 means you must make a 10% down payment, if it’s above 580 then just pay 3.5%.

A low credit score will cause lenders to be more strict when approving your loan.

Conventional loan

The minimum credit score is 620. 

If you have good credit then most lenders will come forward to offer conventional loans. The loan amount isn’t checked or given by the government agency, instead, they follow the rules and regulations of the Federal Housing Finance Administration. If your score is above 720 then you’ll get the best rate.

VA loan

A minimum credit score is 640. The VA loan is insured by the Department of Veterans Affairs. To get this loan you must be a veteran, an active duty member of the army. 

USDA loan

An average credit score is 640. It is similar to VA loans, insured by the US Department of Agriculture. 

Jumbo loan

An average credit score is 700. Jumbo mortgages allow people to get a loan for expensive properties. This year, there are certain limitations for conventional conforming loans. 

Jumbo loans can be used for a variety of property types.

  • Need higher credit scores
  • Not government-backed

May require a down payment of between 5% and 25% depending on credit and income.

How to Improve Your Credit Score

To improve your credit score, first, you must check your credit report and know what’s making your score down. Then start improving.

Here are some tips to improve your credit score:

  • Pay your bills on time
  • Avoid new credit lines
  • Lower your credit utilization
  • Be patient
  • Don’t close old accounts 
  • Be conscious of tracking your credit, pay your bills on time, and get the right loan for you!

6 Ways To Enjoy a Positive First-Time Home Buying Experience

Buying your first home will be mixed with emotions, it will be a great milestone in your life, right? It’s also one of the biggest investments of your life. But without a healthy mindset what will you enjoy? So focus on the positives of buying a home and customize your home based on your lifestyle and personal taste.

We’re here to help with these home buying tips before you get pre-approved.

1. Hire Experienced Professionals

A perfect team of experienced professionals will help you in finding the right home for you. This, in turn, creates a positive experience. Choose a well-experienced real estate agent as they will have a piece of keen knowledge in helping you to choose the home inspectors, lenders, and other professionals whom they’ve worked with and trust.

2. Enroll in a First-Time Home Buyer Education Course

The real estate market keeps on updating and changing over the years, to understand the happenings you must have deep knowledge of its specific terms, laws, and the process. You can’t learn everything very easily so enroll in a home buyer education course that can help you know the inner workings of real estate.

3. Research Your Local Housing Market and Mortgage News   

To buy a valuable property you must know what’s the current housing trends and home sales. This will help you know about the real estate market much deeper. If the market is tough to compete decide if you want to buy or improve your offer to buy.

Research the current rates and housing prices to fit your budget, negotiations, and a home-buying timeline.

4. Practice self-care

You have to face a lot of challenges before buying a property. It’s not only in this case, but you must also prepare yourself to overcome any hard situations without sacrificing your well-being.

5. Stick to your budget

Think well and create a budget, don’t overdo the price. You must know how much you can afford and don’t budge on that price while submitting an offer. If you fail to stick to your budget then it can impact your mortgage payments, down payment, and insurance premium.

6. Maintain a positive mindset

As a new homeowner, you may have a lot of plans that may excite you about homeownership. Make a list like planting the garden, adding an eye-catchy curb appeal, etc. If you have any other plans add them and maintain a positive mindset all the time.

If you want to be a happy homeowner understand the process and set the goals. Know your budget, and hire a team of talented real estate professionals to help you know what you need to buy a house.

How Much House Can I Afford?

Buying a house is a big investment and it’s quite easy to get excited. But in reality, it’s very important to know about what you can afford. Knowing your budget and hunting for homes will make the process run smoothly. If the homes are not in your price range then just neglect them.
Determine how much you can afford by checking in the home affordability calculator. This will let you know how much you can afford and how much is needed for your down payment as well as closing costs.

For instance, to check how much home you can afford on a calculator just enter the location, yearly income, monthly debts, and finally the money you have for a down payment plus closing cost. This information will let you know how much amount of a loan you can take.
The 29/41 Rule And How It Relates To Calculating Home Affordability

29 represents your house expense ratio, which is calculated by dividing your mortgage payment into your gross monthly income and then converting it to a percentage.

Principal + Interest + Property Taxes + Insurance (Homeowners & Mortgage)+ Homeowners Association Dues
_____________________________ × 100

Gross Monthly Income

The 41 represents,
Installment Debt + Revolving Debt Payments _________________________________________________ × 100
Gross Monthly Income

The 29/41 rule is very important to know when you think about your mortgage qualification because DTI helps lenders to know your capacity to pay your mortgage.
Other Factors That Determine How Much Home You Can Afford
Other than DTI and housing expense ratio there are some other factors to keep in mind before you look for a new home.

Mortgage term

It refers to the time you’ll take to pay the amount, the common loan terms are 15 and 30 years. Suppose you’ve closed your home loan the monthly mortgage payment will be a huge amount of debt to pay. So decide how much you can afford it.

Mortgage interest rates

It refers to the interest rate on your mortgage. The rates are determined by your lender which can be either fixed or adjustable. The interest rate can vary depending on the credit score, down payment, etc.
Monthly budget
How much is your budget? If there’s a shortage then keep track of your cash inflow and outflow for a couple of months. Then create a budget sheet to follow.

Down Payment

The interest rates are decided by two factors which are down payment and median FICO. If the down payment is high, the better your interest rates. If it’s less than 20% then you must pay for mortgage insurance. This protects your lender and the mortgage investor if you fail to make payments.
Overall, how much home you afford will depend on your financial situation so evaluate it. Once all the steps are completed, it’s time to get the keys to your dream home.