Your credit score plays a big role in the homebuying process. It’s one of the key factors lenders look at to determine which loan options you qualify for and what your terms might be. But there’s a myth about credit scores that may be holding some buyers back.
The Myth: You Need To Have Perfect Credit
According to Fannie Mae, only 32% of potential homebuyers have a good idea of what credit score lenders actually require.
That means two-thirds of buyers don’t actually know what lenders are looking for – and most overestimate the minimum credit score needed.
The Reality: Perfect Isn’t Necessary
But the truth is, you don’t need perfect credit to become a homeowner. To see the average score, by loan type, for recent homebuyers check out the graph below:
There is no set cut-off score across the board. As FICO explains:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders, and there are many additional factors that lenders may use . . .”
So, even if your credit score isn’t as high as you’d like, you might still be able to qualify for a home loan. Many people assume that buying a home requires flawless credit, but that’s not the case. Lenders consider a variety of factors when evaluating loan applications, and while your credit score is important, it’s just one piece of the puzzle.
Your credit score can influence the types of loans you qualify for, the interest rates offered, and the terms of the agreement. A higher score typically unlocks better options, like lower interest rates and reduced monthly payments. However, if your score is on the lower side, there are still loan programs designed to help people with diverse financial backgrounds achieve homeownership. Options like FHA loans, VA loans, or other programs may allow for lower credit scores or smaller down payments.
The key is to understand your financial situation and explore your options. By working with a knowledgeable lender, you can get a clearer picture of where you stand and identify the steps you need to take to secure a loan. Whether it’s improving your score before applying or finding a loan program that works for you, the right guidance can make all the difference in turning your homeownership dreams into reality.
Work with a trusted lender, GreenState, Hills and Veridian are a few local lenders who can walk you through what you’d qualify for.
Simple Tips To Improve Your Credit Score
If you want to open up your options a bit more after talking to a lender, here are a few tips from Experian and Freddie Mac that can help give your score a boost:
1. Pay Your Bills on Time
This includes everything from credit cards to utilities and other monthly payments. A track record of on-time payments shows lenders you’re responsible and reliable.
2. Pay Down Outstanding Debt
Reducing your overall debt not only improves your credit utilization ratio (how much credit you’re using compared to your total limit) but also makes you a lower-risk borrower in the eyes of lenders. That makes them more likely to approve a loan with better terms.
3. Hold Off on Applying for New Credit
While opening new credit accounts might seem like a quick way to boost your score, too many applications in a short period can have the opposite effect. Focus on improving your existing accounts instead.
Bottom Line
Your credit score doesn’t need to be perfect to qualify for a home loan, and that’s great news for many aspiring homeowners. While a higher score can open the door to better interest rates and terms, there are plenty of loan options available for those with less-than-perfect credit. The best way to understand your unique situation and discover what options are available is by working with a trusted lender. They can guide you through the process, assess your financial standing, and help you take steps toward achieving your dream of homeownership. Connect with an LKR Agent today to get started!