How hard is it to buy a house?

How hard is it to buy a house?

While lenders look at your income, debt and savings when making mortgage decisions, your credit score is the biggest factor in determining whether you get approved or rejected for financing. That’s why it’s so important to check your credit report regularly so you can gauge the overall state of your financial health.

If you want to buy a house soon or are looking into house refinance for an existing mortgage, checking your credit score should be at the top of your to-do list. Here’s a look at just how important your credit score is for mortgage lending decisions.

Find out how your credit score compares to Credit Sesame members who have a mortgage loan. (Data is based on nearly 140,000 Credit Sesame members who have a mortgage; 67,000 Credit Sesame members who have an FHA mortgage.)

• Credit Sesame members who have a conventional real estate mortgage: Average score is 682
• Credit Sesame members who have an FHA mortgage loan: Average score is 649
• Credit Sesame members who do nothave a mortgage (or FHA loan): Average score is 613

How to buy a house with no credit

How to buy a house with no credit

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There are plenty of reasons why someone’s credit file may look a little thin. Maybe you’ve always paid cash for things and never had any inclination to use credit cards. Maybe you’re getting divorced and any credit lines you had were in your spouse’s name. If you’re in a situation where you have no credit history at all it’ll be tough to get any kind of loan, especially to buy a home but it’s not impossible if you know what your options are.

As we mentioned before, an FHA loan is a great option for a house loan, not only for those with poor credit history but also for those without one at all. Just keep in mind that if your credit score is below the 580 minimum, you won’t be eligible to put down 3.5% on a home loan. You’ll have to pony up 10% of the home’s purchase price instead, which may mean saving a little longer before you try to buy.

Getting a credit card in your name is another good way to build credit fairly quickly. If you have no credit at all, you may only be able to qualify for a secured card to start. With this kind of card, you put up a cash deposit that serves as your credit line. As long as you’re keeping the amount you spend to a minimum and paying the card off in full each month, that can help you create a positive credit history and generate a credit score.

If you’re cautious about using credit cards, getting a recommendation from your landlord, a utility bill for the past 12 months, or evidence of your paying your insurance premiums are other great ways to prove that you’re responsible about paying your bills on time.

If you have enough money saved up, then paying a larger down payment will also increase your chances. Note that aiming for a loan with a larger bank may not be your best bet – local banks and lenders are more likely to accept your offer.

Renting to own is another option when you lack a lengthy credit history. With this type of arrangement, you make a monthly rent payment to the owner plus an extra amount that’s put into an escrow account. When you’re ready to apply for a loan the money in the escrow account can be used as your down payment or be deducted from the home’s purchase price.

If you’re able to negotiate owner financing instead of going through a bank, your lack of credit may not be a factor. Just make sure to have a lawyer inspect the contract before you move forward with this kind of plan.

Here’s how to buy a house with bad credit

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Here’s how to buy a house with bad credit

When you’re interested in buying a home but your credit isn’t that great you may be worried about having to put down a large payment or getting declined for a loan altogether. While bad credit can impact the interest rate you’ll pay on a mortgage it doesn’t have to be an obstacle to buy a home. You can still find house loans with bad credit, you may just have to put in a little extra work – and money.

Even if you have faced bankruptcy or foreclosure recently you still have a great shot at getting a mortgage without paying excessively high rates or need thousands of dollars to put down. That’s thanks to government-created mortgage programs that are trying to get the housing market back on track by helping Americans buy homes with poor credit.

What’s the minimum credit score to buy a house that lenders are looking for?

What’s the minimum credit score to buy a house that lenders are looking for?

The minimum credit score needed to buy a house isn’t set in stone and in fact, it can change quite often especially during and after a recession when the economy is on a downturn. It’s not unusual for lenders to enforce tighter restrictions on borrowing when the economy is shrinking instead of expanding. In the wake of the housing collapse, for instance, applicants with credit scores of 720 and above were getting rejected for mortgage loans.

Fortunately, the real estate market has improved dramatically since 2008 and lenders have eased up a bit in terms of the minimum credit score they’re looking for. The minimum score also depends on the type of loan you’re applying for.

Not sure which category you’re in? Check your credit score for free on Credit Sesame.

With a conventional loan for a house that’s backed by Fannie Mae or Freddie Mac, for example, the minimum score required is set at 620. But the lowest credit score to buy a house with an FHA loan is 580.

Keep in mind, however, that individual lenders may raise the bar higher based on other factors, such as your income or how much of a down payment you’re putting down. That also affects your interest rates. As a generalization, the average credit score to buy a house is 600 or above.

The following chart shows the average scores of Credit Sesame members. Where do you fall?

For example, let’s say you have a 640 credit score and you want to buy a $200,000 home. You have $20,000 to put down which qualifies you for an interest rate of 5%. At that rate, you’ll pay nearly $170,000 in interest on the loan. If you could bump your down payment up to $40,000, which is 20% of the purchase price, you’d get a rate of 4.5% instead. That would shave roughly $35,000 off the interest charges.

Credit Sesame members who have mortgages actually have higher credit scores than those who do not.