Buying a house can be stressful, but it does not have to be. When equipped with the right information so that you can make an educated decision about your next house, the process can rather be thrilling. In the second part of our First Time Home Buyer Guide, we will be discussing the ideal credit score that you should have when buying your first house.
Credit score requirements when looking for purchasing a home are dependent on the type of loans you decide to take. Regardless, it is advisable to clear off as many credit card and student loan debts before buying your house. Many who have had a credit card before should know about FICO Scores. FICO is a tool used to measure the likeliness that the credit card holder will pay off their debts in time. It develops trust between the lenders and the credit card holder so that when the time comes for big purchases such as a new car or a house when you have a good credit history, they are more likely to lend you that money at a lower rate.
For conventional mortgages from a private lender, the minimum FICO score needed is around 620. Their requirements are typically stricter than that of a government-sponsored organization. In the best-case scenario, you can get a 3% down payment for first-time homebuyers. If you are not making more than 80% of the median income for the area that you are in, the down payment now increases to around 5%. Your Debt-to-income (DTI) ratio shows how much of your income is dedicated to paying debts; when choosing conventional loans, your DTI should be 50% or lower. You might also have to pay for private mortgage insurance if you put down less than 20% on the loan. Below is a quick overview of conventional loans:
FHA loans are a popular choice among first-time home buyers when they’re not opting in for conventional loans. FHA loans are government-sponsored; additionally, they require a FICO score of 580 for a 3.5% down payment and a score of at least 500 (depending on the lender) for a 10% down payment. You need, a score less than 580 usually results in a 10% down payment. You need to have at least one credit card to apply and if you have more than one, your credit score will be dependent on the average of your credit cards. FHA loans are typically easier to apply and have competitive interest rates compared to some of the other loan options.
Finally, VA loans are designated for veterans with around a minimum FICO score of 620. The big catch is that they do not require a down payment and therefore, they are highly suggested if you are a member of the United States Military or a spouse of a deceased member.
Even though this might seem overwhelming, the LORE Team in Orlando can help support you during this new and exciting time. Our professionals have over 50 years of experience and extensive knowledge of real estate, and they would be more than happy to assist you in your search for a new home.