How lenders look at your credit when buying a home

Your credit when buying a home. You might be curious in how lenders calculate your credit score before we discuss the number you need to be eligible. After all, three distinct bureaus publish your FICO® Score.

Lenders will obtain your credit score from each of the three major credit rating agencies when you apply for a loan on your own, and they will use the middle or median score to determine your eligibility.

The lowest median score obtained by all borrowers on a loan with two or more borrowers is typically regarded as the qualifying score. The exception to this rule is a conventional mortgage that is backed by Fannie Mae and has several clients. The median scores of the loan borrowers are then averaged in such situation.

The average credit score would be 650 if you have a median score of 580 and your co-borrower has a score of 720. Because 620 is the minimal score required for conventional loans, it can make a difference in whether or not a borrower gets approved for a mortgage.

You should be aware that the lowest median score is recorded for determining your rate and mortgage insurance, so your rate may be a little higher. Additionally, in some circumstances, Fannie Mae continues to qualify borrowers using the score that is the lowest in the middle. We advise consulting a home loan specialist.

Credit scores needed for these 4 types of loans

Conventional Loan

conventional loan are not backed or guaranteed by any government initiative. They work best for customers with better credit scores and funds set aside for a down payment. When you apply for a traditional loan, it is advised that your credit score be 620 or above. Lenders may not be able to approve your loan or may be forced to offer you a higher interest rate, which could mean higher monthly payments, if your credit score is below 620.

VA loan

If you are a qualified veteran, active duty service member, or spouse, you may be eligible for a government-backed VA loan. The minimum credit score needed to purchase a home isn’t defined by the industry, however Rocket Mortgage® demands a credit score of at least 580 for a VA loan.

FHA loan

An FHA loan, which is insured by the Federal Housing Administration, may be an option if you have a low credit score or little money saved for a down payment. Typically, a 580 credit score is required for an FHA loan. However, a higher credit score can still make you more likely to get approved for a lower FHA mortgage rate.

USDA loan

If you intend to reside in a rural or suburban region that qualifies and your income is less than 115% of the median income for the area, you might want to consider a USDA loan, which is backed by the government. For USDA loan, the majority of lenders need a minimum credit score of 640.

Finding the best loan for you

It’s time to analyze your own credit score once you have a basic understanding of the credit score requirements for each form of loan. To do that, check your credit report. Because it contains information about your credit history, your credit report is a crucial component of knowing your credit score. You should develop the habit of checking your credit report at least once a year and reporting any problems to the credit reporting agency as soon as you discover them because any error on this report could affect your score. Each of the three major credit reporting companies must provide you with a free credit report once each year.

Rocket HomesSM, a subsidiary of Rocket Mortgage, may assist if you’d want to check your credit score. You can track and analyze your credit profile with the aid of Rocket Homes. You may check both your VantageScore® 3.0 credit score and your TransUnion® credit report on Rocket Homes, which is easily updated every seven days to provide you the most recent data. When you are ready, you can evaluate your alternatives for a conventional or government-backed loan based on your credit score.

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