Prepare Your Credit Scores For Home Purchase And Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Prepare Your Credit Scores For Home Purchase And Mortgage Was UPDATED And PUBLISHED On May 20th, 2020

Prepare Your Credit Scores For Home Purchase

Home buyers or those who plan on buying a home in the near future, should prepare your credit scores for home purchase.

  • Credit Scores is what determines whether or not borrowers qualify for a home loan
  • Every mortgage loan program has minimum credit score requirements to qualify for home loans
  • For example, FHA Loans, Conventional Loans, USDA Loans, VA Loans, and Jumbo Loans all have their own minimum credit score guidelines
  • FHA Loans minimum credit score requirements to qualify for a 3.5% down payment home purchase loan is 580 credit scores
  • Fannie Mae and Freddie Mac are the two mortgage giants that set conforming lending guidelines on conventional loans

In this article, we will discuss and cover Prepare Your Credit Scores For Home Purchase And Mortgage.

Minimum Credit Scores Depends On The Particular Loan Program

Minimum credit score requirements for conventional loans is 620:

  • Conforming minimum credit score requirements of 620 is substantially higher than FHA Loans
  • USDA Loans require 580 credit score
  • Most VA Loan programs does not have a minimum credit score requirement
  • 580 credit score is recommended on VA Loans although there are lenders that will qualify and approve VA borrowers with credit scores of under 580 like Gustan Cho Associates
  • Most Jumbo Mortgage Lenders require a 700 credit score minimum, although there are a few Jumbo Lenders that will go down to 620 credit scores

Condotel and Non-Warrantable Condo Financing requires a minimum credit score of 680 credit scores.

Prepare Your Credit Scores For Home Purchase And Refinance

How to prepare your credit results for home purchase and refinancing

Another reason for you to prepare your credit scores for home purchase and refinance is because the biggest factor that determine mortgage rates are credit scores.

  • Credit scores is by far the single most biggest factor in determining what mortgage rates you get
  • There are other factors that determine mortgage interest rates
  • However, credit scores is the leading indicator on the risk level lender judges on every single borrower
  • Lower credit scores means higher risk

On conventional loans, to get the best mortgage rates, borrower needs a credit score of over 740.

Loan Level Pricing Adjustments On Low Credit Scores

There are pricing adjustments on every 20 FICO point drop of credit scores:

  • As an example, borrower with a 740 credit score may get quoted a mortgage interest rate of 4.0% where a borrower with a 680 Credit Score may get quoted a rate of 4.5% mortgage rates
  • FHA Loans are not as credit score sensitive like conventional loans
  • But lower credit scores on FHA Loan applicants means higher mortgage rates
  • If credit scores are higher than 640, borrower will most likely get the most competitive FHA mortgage interest rates
  • Pricing hits on FHA Loans are extremely severe if credit scores drop below 600
  • On a recent example, a borrower with a 680 credit score got quoted a 3.875% FHA interest rate where another borrower with a 581 FICO credit score got quoted a FHA mortgage interest rate of 4.75%

Refinance borrowers should do all they can to get their credit scores as high as they could to get the best possible mortgage interest rates.

Tips On How To Prepare Your Credit Scores For Home Purchase

What are the tips on how to prepare credit results for buying a home

There are some quick fixes in boosting and maximizing credit scores.

  • Buyers planning on buying a new home in the very near future or planning on refinancing current home loan, consult with a loan officer
  • Loan officer will pull credit and can advise on how to maximize credit scores
  • Paying down credit card balances is one way of instantly increasing credit scores
  • Consumers with no active credit tradelines , try getting several secured credit cards which will definitely boost credit scores by at least 20 FICO points per secured credit card
  • Never be late on any monthly payments
  • One 30 day late payment will definitely plummet credit scores
  • Do not pay off any older collection accounts
  • Borrowrs can qualify for a FHA Loan with collection accounts with outstanding collection balances and charged off accounts

If consumer pays old collection accounts, it will re-activate the statute of limitations and will trigger a current late payment on a dormant collection account which will drop credit scores. Borrowers with lower credit scores, do not apply for new credit . This is because every hard credit inquiry will drop credit scores by two or more FICO points. Chances are that you will not get an unsecured credit card approval if credit scores are under 700. Secured cards are the fastest and easiest way of re-establishing credit and raising credit scores.