What is the minimum credit score to buy a home?
The Magic Number is 640
The credit crisis of the great Recession caused many changes to the home mortgage business. Lenders who loan money on residential property now are more likely to use the FICO credit scoring system to qualify people for a mortgage. The banks and mortgage companies will normally pull all three credit bureaus (Experian, TransUnion and Equifax) and use the score that is in the middle as an average for a borrowers score.
Example credit scores:
- Experian – 628
- TransUnion- 643
- Equifax- 649
The banks and mortgage companies would take the score in the middle and call this credit score a 643.
If your middle score is below 640 some of the ways you can build your credit score are by looking at your credit report and figuring out what is causing the hit on your credit.
How to increase your credit score
- Pay Your Bills On Time – From this point forward make sure to make the deadlines. You will also save a lot of money on late fees.
- Pay off Any Collections – Even a small medical collection can have a large effect on your credit score. Call and get payment plans if necessary and take care of any collections.Keep student loan payments up to date. Even if your loans are in deferment the future payments may be calculated into your home loan qualification.
- Manage credit cards – make sure you are not over your credit limit on credit cards. If you are not eligible to get a traditional credit card you can consider a secure credit card to boost your credit score. This way you put a cash deposit up front and a card is issued to you for that amount. For example: You provide $300 and the bank gives you a $300 credit card. There will be some fees associated as well but this a good way to boost your credit score.
- Wait on large purchases – Wait until after you close on the home to buy furniture or a refrigerator on credit.
- Save Cash – Try to hold onto some cash for down payments, closing costs or inspections.
Work this plan and before you know it you will be able to realize the American Dream. I partner with many loan originators that can help you analyze your credit and together we can put you on the path to home ownership.