We have all seen the credit score ads that sometimes get stuck in our mind for days. But how important is it when thinking of buying a home? The answer may seem obvious but the truth is you don't necessarily have to have an outstanding credit score to be approved for a loan.
People who've lost previous homes to foreclosure or have had a bankruptcy in their past, have been approved for home mortgage loans. Yes, the new laws have made it a bit harder to be approved for certain types of loans, but if you have the right person working for you there's a fair chance you could be approved without perfect credit and a minimal down payment.
What Do The Credit Score Numbers Mean?
So you're thinking if you don't have these perfect scores in the 700's or 800's then you're never even going to be considered for a loan right? Not necessarily true. Realistically if you have a huge amount of outstanding debt, a poor record of paying your bills on time, and owe a ton of money you won't be greeted with open arms from loan companies.
However, with a FICO credit score of at least 640 you could still be a legitimate prospect for a Conventional loan. So the best thing to do is find out what your FICO credit score is. Your Realtor can help you get your FICO credit score so you'll know from the very beginning if you're wasting our time or not.
Credit Score and FHA Loans
FHA loans are known to often lend to those with a score of 640 or less. When you have a lower credit score your best bet will be government insured loans, as the government insured loans tend to be slightly easier to get with less than perfect circumstances.
An FHA Loan is one type of loan that is government guaranteed and is often offered to those who don't have an immediate 20% down payment. Allowing for smaller down payments and slightly less than perfect credit scores make FHA Loans very attractive. Basically the FHA loan is a little easier to qualify for with slightly less stringent rules.
With an FHA Loan you may only have to have as little as a 3.5% down payment. You will also probably be required to purchase a special insurance for the loan, which adds a little more to the loan total itself. When obtained this insurance should not make your payments increase substantially either.
Credit Score and Getting Pre-Approved
Your realtor estate agent can help guide you in getting "pre-approved" for a loan. A pre-approval is not a guarantee that you will get a loan and it holds nobody hostage under contracts. It's a way for most of the paperwork to get started and get the ball rolling while you look for a home.
If the pre-approval comes back with an adamant "no" you're going to know not to waste any time; whereas, if it comes back pre-approved you're in pretty good shape that you will qualify for the final loan application. Pre-qualification eases the minds of all involved and can help you get in a new home faster.