Credit Score Impact Pt. 1

This is the first in a three part series diving deeper into the credit score importance in home financing.

________________________________________________________________________________________________________

How Credit Scores Are Evaluated:

Range: Credit scores typically range from 300 to 850 (FICO or VantageScore models).
Key Factors: Payment history (35%), credit utilization (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
Minimums: Lenders set minimum score requirements, varying by loan type and institution.
Impact on Mortgage Eligibility
1. Conventional Loans
  - Minimum Score: Typically 620–660, though 740+ gets the best terms.
  - Impact: Below 620, approval is rare without a co-signer or larger down payment. Scores below 700 may require private mortgage insurance (PMI) if the down payment is less than 20%.
  - Institutions: Commercial banks, credit unions, mortgage lenders.
2. FHA Loans
  - Minimum Score: 580 for 3.5% down; 500–579 for 10% down.
  - Impact: Designed for lower scores, but below 500, options vanish. Higher scores still reduce interest rates and PMI costs.
  - Institutions: FHA-approved lenders (banks, credit unions, non-bank lenders).
3. VA Loans
  - Minimum Score: No official minimum (set by lenders, often 620–660).
  - Impact: Flexible for veterans; poor credit may still qualify with strong income or compensating factors.
  - Institutions: VA-approved lenders.
4. USDA Loans
  - Minimum Score: Typically 640, though some lenders allow lower with manual underwriting.
  - Impact: Below 640, approval is harder; higher scores streamline the process.
  - Institutions: USDA-approved lenders.
5. Seller Financing
  - Minimum Score: No strict requirement; depends on the seller.
  - Impact: Credit score matters less since it’s a private deal, but sellers may still check it to assess risk.
  - Institutions: N/A (direct with seller).
6. Hard Money Loans
  - Minimum Score: Often irrelevant; focus is on property value.
  - Impact: Bad credit doesn’t disqualify you, but rates (10-15%+) are high regardless.
  - Institutions: Hard money lenders.
7. Rent-to-Own
  - Minimum Score: Varies by agreement; often no initial check.
  - Impact: Credit isn’t a barrier to start, but you’ll need a decent score later to secure a mortgage.
  - Institutions: Property owner or management company.