Obtaining a home loan is one of the biggest events in most people’s lives and yet there are a lot of misconceptions about credit scores and mortgages. A low credit score doesn’t necessarily disqualify you from obtaining a loan, the same way that a high credit score doesn’t necessarily qualify you for a loan.
United Atlantic Mortgage is one of the leading locally owned and operated mortgage companies in the entire state of Virginia, and we’re located in Virginia Beach. Your loan officer at UAM can help solve your credit problems when it comes to obtaining home loans.
Below is a good general guideline concerning credit scores, but for specific questions, you’ll need to contact your loan officer at UAM. We’ll get your credit score looking its best while guiding you through the buying process.
What is the lowest score that you can have to obtain an FHA home loan?
While FHA guidelines allow loan obtainment with a FICO score of at least 500, this is very rare and requires a minimum of a 10% down payment. Most lending institutions’ lowest threshold for loan obtainment starts with a FICO score of 580 and a 3.5% down payment requirement. While that will get your foot in the door, it is always beneficial to improve your credit score as much as possible.
What is the lowest score that you can have to obtain a Conventional Loan?
Because Conventional Loans have higher home loan standards, the bare minimum credit score to obtain a Conventional Loan is a FICO score of at least 620 with at least a 5% down payment.
What is the lowest score that you can have to obtain a VA home loan?
Like Conventional Loans, VA loans have a slightly higher loan obtainment standard and thus require at least a FICO score of 620.
How does a low credit score affect your mortgage?
A lending institution takes a calculated risk by issuing loans, therefore they use the borrower’s credit score as part of their risk assessment. The lower your credit score, the higher the perceived risk for defaulting on the loan. With this higher risk, the lending institution wants a higher return on investment. Long story short: lower credit scores equals higher interest home loans.
What can I do to get my credit score higher?
There is no one correct answer to get a higher credit score because everyone’s credit scenario is unique. Different situations call for different solutions to obtain optimum credit.
In general, a few tips are evergreen to all credit situations:
- Pay down your revolving credit (i.e. credit cards) to at least below 50%.
50% debt keeps you in the “safe” zone; below 30% revolving debt gives a credit boost; between 7%-20% leads to an optimum credit score.
- The best thing that you can do for your credit score is to pay bills on time. While it sounds easy, oftentimes we miss payments because life happens and we sometimes forget. Anything that you’re able to put on auto payment: do it. This is the easiest way to boost your credit score.
- NO LATE PAYMENTS. Late payments and outstanding debts are credit killers.
- If you’re unsure of a scenario, ask your loan officer. One of the biggest advantages of using a locally owned mortgage company is their accessibility. Your loan officer wants to see you get the best results too.
Misconceptions About Obtaining a Good Credit Score
- No debt is good: False.
Having no debt actually hurts your credit score. It’s good to have revolving debt, but pay it down to optimum levels (7%-20%).
- You must pay off all of your delinquent payments: False.
While paying off most of your delinquent debts is beneficial, paying off certain debts can actually harm you. Speak with your loan officer before you pay off any delinquent debts, as their expertise will be able to guide you to correct debt payments.
- High credit scores means more loan buying power:False.
While great credit helps you get ideal loan terms, it does very little in terms of sheer buying power. Your income is the biggest factor in determining how big of a loan you qualify for.