You’ve probably heard people say before that it’s important to have a high credit score when buying a home. But have you ever wanted to know the exact credit score you need in the New York City? That is the question we are going to answer in this article. But first, let’s briefly explain why your credit score is so crucial during the home-buying process.
Why Your Credit Score Matters When Buying a Home
Your credit score shows lenders how likely you are to make full and on-time payments on your mortgage each month. As such, lenders use it as one of the main indicators that determine your qualifications as a home buyer.
- You need a certain minimum credit score to qualify for a mortgage. If you don’t have that minimum score, you may not be able to move forward with purchasing a home until you do. We will talk about this more shortly.
- The higher your credit score, the more competitive the loan offers you will receive. You may qualify for a lower down payment amount and/or more affordable interest rates.
When we discuss what credit score you “need” to buy a home, you’ll need to decide what, at a minimum, you’re trying to accomplish.
Do you simply want to be able to purchase a home at any interest rate and down payment amount? Or are you looking for a particular interest rate or down payment amount? If it’s the latter, you may need a credit score higher than the bare minimum to buy a home.
Ideal credit scores for purchasing a home
First, let’s talk about the ideal scores for buying a home. Please note that these are not the minimum scores. They are lower, as you will learn shortly. If your credit score is 670 or higher, you should generally be in good shape to buy a home. FICO scores can go as high as 850. If your credit score is 740 and you think you can improve it further, do it. It never hurts to have your credit score as high as possible. Maximizing your score is what allows you to get the most competitive loan offers at the most affordable rates.
Minimum credit scores to buy a home
Fortunately, you don’t need to have a credit score of 670 or higher to buy a home. The exact minimum score you need will depend on the type of mortgage loan you want to qualify for and your lender. As an example, consider FHA Mortgages. These loans are backed by the Federal Housing Administration. Because of this, credit requirements are more relaxed compared to conventional loans, while the loans still have competitive interest rates. To qualify for a low down payment, you’ll need a credit score of 580 or higher. You can also qualify even if your credit score is between 500 and 579, but the down payment won’t be as low.
What if you don’t have the minimum credit score to buy a home?
Hopefully, you’ll find that you have the minimum credit score to buy a home. But if not, try not to worry. Your credit score is not something that happens to you. If you find that your credit score is lower than you would like, you can be proactive in improving it. Don’t forget to work on your other financial metrics as well. You can improve your debt-to-income ratio or demonstrate that you own significant assets. Also, if your score is simply lower than you want, don’t assume you won’t qualify for affordable rates. Loan products like FHA, USDA, and VA can give you more competitive rates than you might expect.
How can you increase your credit score before buying a home?
Here are some options on how you can increase your credit score to improve your homebuyer profile:
- Check what’s happening with your bills. Are you behind on any of them? Let’s catch up. In the future, use automatic payments if you forget. That way, you won’t be left behind again.
- Request the free credit reports you are entitled to once a year. Search them for errors and report any you discover.
- Reduce your credit utilization ratio.
- Some services allow you to choose to report certain payments (i.e., your phone bill) to the credit bureaus. Sign up to receive them if it will benefit you.
Discover More Ways to Boost Your Credit Score When You’re in the Market for a Home. Looking for personalized advice on how to increase your credit score before buying a home? That’s something we can help you with.
Get answers to your credit score questions from Cash Buyers NY
Assessing your qualifications for buying a home on your own can be challenging, especially without a perfect credit score. Cash Buyers NY can help. Call us to schedule a consultation, and we’ll let you know what you may qualify for based on your credit score and the other information you share with us. To get started now, contact us at (646) 920 8900.