Are you worried about your credit score when buying a new home? Well, you shouldn’t be. Because if you want to buy a home here in Delaware, you must pay close attention to this one.

Your credit score may not be the only thing considered when applying for a mortgage, but it is crucial. When looking for a new home, knowing how your credit is doing and how to use it to your advantage to get the best mortgage rate is essential.

So, before discussing the minimum scores, let’s talk about credit scores first. 

What is a Credit Score?

Your credit score, also called a FICO Number, can range from 300 to 850, with 850 being the best score possible. Even though a credit score of 740 or higher is perfect, you don't need a score of 740 or higher to buy a home.

National credit agencies figure out and keep track of credit scores. These scores consider different kinds of debt, like credit card debt, car loan debt, and student loan debt.

Your credit score depends on many things, but the two most important are whether or not you pay your bills on time and how much debt you have. With a credit score based on these factors, lenders can quickly determine if you will likely pay your future bills, like your mortgage.

So, now you know what a credit score is, let’s talk about the minimum credit scores for each type of loan. 

Minimum Credit Score for Conventional Loans?

The lender has a lot of freedom when setting the minimum credit score that an applicant must have to get a conventional mortgage. Financial institutions can set credit score standards that align with their business plans. They can also put credit score cutoffs that change depending on local or regional market conditions.

For example, some mortgage lenders may only work with applicants whose FICO® Scores are higher than 740, which is very good or excellent on a scale from 300 to 850. In comparison, others may focus on giving subprime mortgages to applicants whose FICO® Scores are lower than 740. Several lenders offer a wide range of mortgage packages to fit borrowers with different credit scores.

When everything is considered, the absolute lowest FICO® Score you need to get a conventional mortgage is usually around 620.

Minimum Credit Score for FHA Loans?

Loans backed by the Federal Housing Administration (FHA) help people buy their first home in the United States. Banks, credit unions, and mortgage brokers follow strict rules set by the FHA. People who don't have a lot of credit history or whose credit history isn't great might want to apply for an FHA loan.

A minimum FICO® Score of 500 is needed to get an FHA mortgage. However, applicants with scores between 500 and 579 need to put down at least 10% to be approved. Those with credit scores of 580 or higher may be able to get a loan with as little as 3.5% of the total loan amount as a down payment.

Minimum Credit Score for USDA Loan?

The United States Department of Agriculture (USDA) gives home loans to people with low and moderate incomes. This loan helps them buy homes in rural and suburban areas, which comprise 97% of the country’s rural area.

There are three types of USDA home loans. First, for people with meager incomes. Next, for those who want to make improvements. And third, for qualified people with moderate incomes who wish to get a loan with a low-interest rate and a small down payment. 

The interest rates on mortgages and the most you can borrow through a USDA loan can change depending on the market conditions in each part of the United States. Even though the USDA doesn't say the minimum credit score for loans it backs, applicants in most countries need at least a 640 FICO® Score.

Minimum Credit Score for VA Loan?

VA Loans are housing benefits offered by the U.S. Department of Veterans Affairs. With the help of VA loans, eligible service members, veterans, and surviving spouses can buy homes with a small or no down payment and without having to pay for private mortgage insurance. Issuers of VA loans have a lot of freedom in deciding the minimum credit score, but they have to look at applicants with FICO® Scores as low as 620 if they want to accept them.

So, how do I increase my credit score? 

Getting your credit score up could be helpful.

If you want to buy a home for the first time but have a low credit score, you should start working as soon as possible to improve it. Always pay your bills on time, check your credit history to make sure it's right, and check your credit score from time to time, so you know where you stand.

Lenders may be less likely to give you a loan if they hear that you have made many credit applications quickly. When you're trying to get a mortgage, there are a few things you should try not to do, which will give you more options. Here is a short list of what they are.

• Don't try to get any new credit cards.

• Keep your credit cards (since this can also impact your credit score, so don’t cut them!).

• Wait to fill out any new loan applications.

• If you can help it, don't co-sign any new debts.

Final Thoughts

You don't need perfect credit to get a mortgage, but having good credit can help you get the house you want by giving you more financing options. So, you should raise your credit score, avoid applying for new lines of credit while looking for a new home, and talk to a qualified mortgage loan officer to help you with your options.

If this overwhelms you, don’t worry. Our goal here at Loft Realty is to walk you through these hard-to-understand topics as stress-free as possible on your side. We only suggest steps that are tailor-fit to your needs. You can reach out to us today, and we’ll discuss what works for you.