Times have changed. Many want to know, what’s a good credit score to buy a house? Since 2005, many current and perspective homeowners have and continue to feel the daunting pressures inherent in their financial storybook. Their credit score which is based on overall credit rating, succinct credit score, and timeliness of payments made to various obligations, hovers strong in the balance of debt-to-income ratios and percentage of credit available compared to what is owed.
The national economic downturn, coupled with the real estate value decline has spiraled many credit-worthy consumers into a tailspin. Job loss and property foreclosures have risen. Formerly responsible people now see their personal financial empires crumbled into ashes of stellar credit and limitless spending. All that is left is a glistening memory of what was, that perhaps could never be again.
The ability to purchase a home rests on one’s ability to achieve mortgage loan acceptance-the acceptance founded on one key component, credit score. Since many people have fallen victim to credit collapse, what is the best path to strengthen personal credit? What’s a good credit score to buy a house? The quickest steps to credit recovery are in the improvement of credit rating and credit score.
What is a good credit score range? What is a good credit score rating? The answers lie in understanding the credit system used by most financial institutions, and how good credit is calculated.
Our credit score system was originated in 1956 as Fair, Isaac and Company by engineer Bill Fair and mathematician Earl Isaac, now more commonly known as FICO. The system has a set list of
criteria to formulate a credit score, through analysis, based on the history of how one handles financial obligations and current indebtedness. The FICO numeric platform is based on a range of 300-850. Hence, what is a good credit score range and what is a good credit score rating fall within these numbers. As of 2012, the average credit score in the United States currently ranges from 680-700, a range which has fallen since 2010.
Establishing credit can be realized through a variety of loan programs: installment plans, mortgages, auto loans, revolving loans such as credit cards, home equity loans and lines of credit. The timeliness of payment can adversely affect credit if the minimum payment owed goes beyond 30 days from its due date. In addition, having multiple lines of credit available with more than 30% owed on each can damage credit as it equates to an elevated level of risk, through a heightened debt-to-income ratio. Applying for additional credit in a short amount of time will also hinder and hurt credit score recovery.
To make a home purchase, banks use three different credit bureaus to gage a person’s credit. These bureaus are known within the industry as the “tri-merge”, made of the credit agencies Experian, Equifax, and TransUnion. The credit score acquiesced through the tri-merge is an average of all three bureaus.
A good credit score figure will fluctuate based on the actual mortgage lender used to assess a perspective homeowner’s application. Every lender has various loans to market, each with specific guidelines that relate to credit score, credit rating, necessary debt-to-income ratios, and gross income markers. As a rule of thumb, the higher the credit score, the lower the associated interest rate on the loan.
According to Renee Sacco, Senior Loan Specialist at Wells Fargo, “Most lenders won’t even look at a buyer with a FICO score lower than 640, but we offer FHA loans to buyers with a 580 score, as long as they have 5% to put down for a down payment.”
Many loan options are available to home buyers based on credit score provisions. A buyer can utilize an FHA loan with 3.5% down payment assistance (government assistance or family gifted funds) with a 600 credit score. A conventional loan requires good to excellent credit, with at least a 720 credit score, and a minimum of 20% down payment. Current interest rates on home loans sit at 3.75%, with rates moving higher dependent on credit score and down payment applied, as well as fluctuating market conditions.
Knowing credit scores and the information noted on credit reports enables an accurate accounting of personal credit strength and purchasing power. When considering a home purchase, contact a mortgage representative for more information on how credit affects the ability to obtain a home loan.