I had an email from a prospective buyer yesterday saying she was going to hold off on buying until she got her credit in order. Now, that can certainly be a good strategy. But just how good does one’s credit have to be— before the time is right to get a mortgage and buy a house?
For the most part (ie. there are exceptions to everything) as long as you are above a certain threshold, how much above the threshold makes very little difference. For instance, whether your credit score is 741 or 759 makes absolutely no difference whatsoever. And the difference between 719 and 779 might amount to $8 on your monthly payment. I doubt that for most people waiting a year to bring one’s score up to save $8/month makes much sense.
The minimum required score changes from time to time, and there is some variability between lenders. As a general rule, you’ll find mortgage brokers to be more flexible on credit scores than banks. Currently, you can find lenders who will make competitive, fairly priced, fixed rate mortgage loans based on the following credit scores:
VA- many lenders make VA loans with scores starting at 620. For those close to that mark, they’ll probably insist that there be no loan, rent or credit card payments more than 30 days past due during the most recent 12 months.
RD- lenders making these loans often dip to scores beginning at 600, and for the lower scores will have similar requirements to VA lenders.
FHA- lenders making FHA loans may dip even lower… say into the 580 range. And once again, the lower the score, the more likely there will be stricter requirements on the absence of payments 30 days late in the past year, and on proving one’s rental payment history.
Getting a mortgage can be a PITA. There is no doubt about that. And for those with lower scores, an extra dose of patience and determination will likely be required. However, with the right attitude, one with a lower credit score can obtain a mortgage and buy a new home. To get the facts, just ask.