When buying a house, there is a lot to consider - such as where you want to live and the style of home you want. You should also be thinking about the financial aspect of buying a home, which includes looking up your credit score to better understand whether you will qualify for a loan and get a reasonable interest rate.
Typically, you will need a credit score of at least 620 to get a mortgage. Sometimes, you may qualify for a government-backed loan with a lower credit score. If your credit score needs some work, you may take time to build it up or even ask a loved one to co-sign your loan.
If you are contemplating buying a house in the Tampa region, you should know your budget and credit score. At Eaton Realty, we consider these factors when helping our clients search for a home. Reach out today to talk to a member of our Hillsborough County real estate team about your home search.
What Is a Credit Score?
A credit score is a three-digit number between 300 and 850 calculated using information from your credit reports. It is considered a prediction of how likely you will repay a loan. Companies use credit scores to decide whether to offer you a loan or credit card or even rent a house to you. Credit scores also help determine your interest rate and credit limit.
A credit score is calculated using information from your credit accounts (such as your credit card or car loan). This data is gathered by credit bureaus such as Equifax, Experian, and TransUnion and compiled into a credit report. These agencies use a mathematical formula called a scoring model to create a credit score.
Many factors impact your credit score. The two most important factors are your payment history (i.e., making payments on time for all of your bills) and credit utilization (the percentage of your credit that you are using). Generally, your credit utilization should be 30% or less. For example, if you have a credit card with a $10,000 limit, you should have a balance of $3,000 or less (i.e., you’re utilizing 30% or less of your available credit).
Other things may impact your credit score, including your credit history, which is the length of time that you have had credit and the average age of your accounts. A credit score will also take into account your credit mix, whether you have different types of credit, and how recently you applied for credit. For example, if you apply for several store credit cards in a short time, it could negatively impact your credit score.
Generally, the higher the credit score that you have, the better. While each creditor has their standard for what credit score they will accept, there are some basic guidelines for credit scores:
- 300 - 629: bad credit
- 630 to 689: fair credit
- 690 to 719: good credit
- 720 to 850: excellent credit
In addition to your credit score, companies will also consider things like your income, debts, and employment history to decide whether to lend you money or approve your application.
If your credit score is low, there are things that you can do to improve it. Paying all of your bills on time - including cable, internet, and student loans - will impact your credit the most. You should keep your credit card balances low and leave older credit card accounts open even if you don’t use them to increase the average age of your account. You should also aim for a mix of credit cards and installment loans and avoid submitting too many credit applications quickly.
What Credit Score Should I Have to Buy a House in Florida?
Mortgage lenders all have different standards when it comes to deciding whether or not to issue a loan. For this reason, there isn’t a hard and fast rule as to what credit score you must have to purchase a home in Florida. That being said, most lenders require a credit score of 620 to be approved for a conventional mortgage.
Importantly, a credit score isn’t just critical to whether or not you will get approved for a loan. It also affects your interest rate. The higher your credit score, the lower your interest rate will be. Typically, applicants with a credit score of 740 or higher get the lowest interest rates on both the mortgage and private mortgage insurance (PMI). This type of insurance is required if you want to make a down payment of less than 20% on a conventional loan.
Minimum Credit Score For A Conventional Mortgage
Of course, getting a loan with a low credit score may be possible. For a conventional mortgage - where you apply for a loan through a bank or credit union - you will probably need a credit score of 620 or higher. If your score is under 650, however, you may still find it difficult to be approved for a mortgage or get a loan at an interest rate you can afford.
Minimum Credit Score For An FHA Loan
If you have “bad” credit, your best option is to get a loan insured by the Federal Housing Administration (FHA). A FHA loan may allow a down payment of just 3.5% if your credit score is 580 or higher. You may be able to qualify for a loan with a credit score as low as 500 if you get an FHA loan - but you will likely need to put 10% or more down for the purchase.
Minimum Credit Score For A VA Loan
If you have “fair” credit and meet certain criteria, then you might be able to get a loan that is guaranteed by the Department of Veterans Affairs (VA) or the United States Department of Agriculture (USDA). A VA loan is available to veterans, active-duty military members, or eligible spouses. Typically, lenders who offer VA loans require a minimum credit score of 640.
Minimum Credit Score For A USDA Mortgage
USDA mortgages do not require a down payment but are only for properties located in designated rural areas. These loans also have income limits. You may be able to get a USDA loan with a credit score as low as 640.
Keep in mind that these government-backed mortgages are offered through private lenders. These banks are often willing to approve loans for people deemed more of a credit risk because the government insures the loan. That said, they can still set standards for credit scores that may be higher than the above numbers.
Finally, if you need to borrow a particularly big amount, you can get what is known as a jumbo loan. Because this type of loan is more risky than a typical mortgage, lenders usually want applicants to have a credit score of at least 700.
What To Do If You Have A Low Credit Score
You may have difficulty purchasing a house if your credit score is low. There are a few things that you can do to improve the likelihood of getting approved for a loan. First, you can work on your credit score by paying your bills on time and improving your credit utilization rate. This can take time, so you may need to defer your dreams of homeownership for a year or longer.
Second, you can try to qualify for a different type of loan - such as one backed by the FHA, VA, or USDA. As described above, these loans usually come with lower standards for credit scores, so you may be able to qualify even with a lower credit score.
Third, if you know someone with excellent credit, consider asking them to co-sign a loan with you. Co-signing can be risky for the co-signer, as they will be on the hook for the mortgage if you default. You should only ask someone to co-sign a loan for you if you are sure that you can make the payments and not put them in financial jeopardy.
It is critical to work with a Hillsborough County realtor who can work with you and your budget when finding a house to buy. A good real estate agent will consider your financial situation when creating a list of potential homes and can help you explore financing options.
Considering Buying a House? We Can Help
Buying a home can be exciting - and a bit scary. For most people, it is the largest purchase they will ever make. It can be stressful to think about spending that amount of money, especially if you are worried about your ability to qualify for a loan.
Eaton Realty works with home buyers throughout West Central Florida. Our Tampa realtors work collaboratively with our clients, considering their budget and financial situation when putting together lists of potential homes. With more than 20 years of experience in the Florida real estate market, we use our knowledge to help our clients find the right home for them at the best possible price.
If you want to buy a house, we are here for you. Take your first step by filling out our online contact form, or call us at 813-672-8022 to talk to a real estate team member.
