Buying a home amid the pandemic? Here’s the credit score you need
Getting a home loan might be a little more difficult right now, but you can improve your chances with a higher credit score. (iStock)
If you’re considering buying a home to take advantage of the low interest rates, you’ll want to make sure you understand the importance of your credit score. While you may be able to secure a home loan with a score as low as 580, you won’t qualify for the best rates without a higher score.
Homebuyers searching for real estate amid the COVID-19 pandemic also have other factors to consider.
Lenders are tightening their lending requirements. Interest rates are at or near record lows since early 2020 when the Federal Reserve lowered their interest rate to near 0% to protect the economy from the effects of the coronavirus pandemic.
As many people faced forbearance, job loss, or reduced income, many lenders raised lending requirements to protect themselves against late payments and defaults. While you may have been able to buy a home with lower scores, it might not be an option for you now.
Think your credit score is ready to go? You can explore your mortgage options by visiting Credible to compare rates and lenders.
What are today’s mortgage rates?
At publication, the average 30-year fixed-rate loan is 3.13%. The average 15-year fixed-rate loan is 2.42%.
As the economy continues to recover with news of more vaccines and reduced restrictions in some areas of the country, interest rates may continue to rise.
What kind of credit score do homebuyers need to get a reasonable mortgage rate?
Before the pandemic, homeowners may have been able to snag a home loan with a 3.5% down payment with a credit score as low as 580. Now, many borrowers are blocked out of the market altogether. Many lenders require a score of at least 620 to qualify.
According to Banker & Tradesman, some lenders like JPMorgan Chase increased their minimum credit score requirement for any credit to 700 and require a down payment of at least 20 percent for any home loan, according to Banker & Tradesman. Wells Fargo increased their minimum credit score to 680 for government loans, and some lenders stopped offering jumbo loans or home equity loans.
To get the best rates, aim for a credit score of 670 (good on the FICO scale) or higher.
While it may be more challenging to get a home loan, taking the time to improve your credit score can help you save thousands of dollars on a mortgage loan, so it’s worth taking steps to improve your chances for approval. Not sure where you fit on the credit score spectrum? Then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
As you’re working on your credit score, make sure to use an online mortgage calculator to get an idea of what your new monthly payment could be.
Tips for improving your credit score
If you’re ready to buy a home and take advantage of lower rates, there are a few things you can do to improve your score so that you qualify for the best rates possible.
- Set your bills on autopay. On-time payments significantly affect your credit score.
- Reduce your debt-to-income ratio by paying off debt.
- Ask for a credit line increase on your open credit cards.
- Keep your credit lines open (even when they’re paid off).
- Monitor your credit report for fraud or errors.
- Don’t apply for new credit cards or loans for several months before applying for a mortgage loan.
- Make sure you have a healthy mix of credit.
If you’re ready to see if you qualify, you can use an online mortgage broker, like Credible, to get personalized rates within 3 minutes without affecting your credit score.
The combination of stricter lending requirements and a competitive housing market could make it a little more challenging to get the home of your dreams. But difficult doesn’t mean impossible. If you’re willing to put in a little extra time into building your credit, and you’re ready to look, you can still get a home.
Don’t forget to take time to research your lenders so that you can maximize your savings. Credible can help you compare multiple mortgage lenders at once in just a few minutes. Use Credible’s online tools and get prequalified today.
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