If you are in a place where you want to buy a house, there are some considerations you should make. Unfortunately, many of us get caught up in the excitement of looking for the perfect home and overlook some crucial details.

Before you begin your journey of looking for your house, you should start by taking a long hard look at your finances. Once you address those pieces, you will have a better understanding of how much you can afford and the price range in which you should be looking. Continue reading to find out more about credit score, finances, and when to pay credit card bills.

What is a Credit Score?

Before you can genuinely understand what credit score you need to acquire a mortgage, it is helpful if you understand credit scores.

Lenders use this number to determine how risky it is for them to lend you money. Your credit score is dictated by your credit habits and looks at various factors, including the types of debt you have, your payment history, and how much you owe. It also takes the length of your credit history and any new credit into consideration.

What is the Minimum Score I Need to Buy a House?

The minimum score you need to buy a house depends on the type of loan and the lender. There are conventional or traditional loans that are not back by a federal agency. There are also government-backed loans where generally a lower credit score is acceptable.

Conventional Vs. Government-Backed Loans

Conventional Loans

They typically require you to have a credit score of at least 620, but that is the low end of the credit score. This credit score means you will have higher interest and terms that are restrictive. For example, you may need a higher down payment. There are some lenders that will not give a mortgage to you if your credit score is lower than 740. It is essential to understand your credit score and the requirements of the lender.

government-backed loans

If you are interested in a government-backed loan, you can have a lower credit score and still get a mortgage. However, there is usually a limit as to how much you can borrow for a mortgage with a government-backed loan. There are three major categories of government loans, which include USDA loans, FHA loans, and VA loans.

USDA loans are primarily for those purchasing a house in the suburbs or rural areas. These loans are partially backed and secured by the government and have a recommended credit score of 640.
FHA loans are secured and backed by the Federal Housing Commission and are typically for first time homebuyers. Typically, these buyers have lower credit, and you can have credit as low as 500.
VA loans are typically for veterans or the surviving spouse of a veteran that meets specific requirements.

Can I Get a House with Bad Credit?

It is possible to obtain a mortgage to buy a house with bad credit. However, it may come with fees, higher interest rates, and more strict requirements. While that may not seem like it has a huge impact, an increase of just a few points can make a huge difference in your monthly payment. If you have bad credit, you may want to save a larger chunk of money to put down as a down payment. If a lender sees that you are invested in the house, they may be more willing to provide you with a mortgage despite your credit.

While you are working to save money for a down payment, you can improve your credit score. You may have to make a decision between saving money and when to pay credit card bills off. If you can eliminate your credit card debt and save money for a down payment, you will be in good shape for mortgage approval.

What Is Considered When Determining Mortgage Approval?

While your credit score is a large factor when a lender determines your credit worthiness, it is not the only one. There are other factors they consider, and you should be aware of them.

Income

These factors include your income. Lenders are interested in making sure that you are able to pay your mortgage and other bills in the future.

Down payment size

If you have 20 percent of the total cost of the house to put down, lenders are much more willing to work with you.

Savings

At the same time, lenders look at income to determine your ability to pay moving forward; the amount of money you have saved also matters.

Debt to income ratio

Your debt to income ratio also gives lenders a look at how much money you are paying out for debt and how that compares to the amount of income you have.

How Can I Improve My Credit?

If you already know that you have poor credit, you may want to work at improving your credit before you attempt to get a mortgage. This can improve your chances of being approved, as well as getting a better interest rate.

Pay Off Credit Cards

In addition, this is a good time to determine when to pay credit card off. If you have outstanding balances on your credit cards, you should consider paying them off and keeping them with no balance for a while before getting a mortgage.

Pay Bills On Time

You want to pay attention to the bills that you have and make sure you are paying them on time. It is essential that you pay them in full and on time each month. If you miss payments, this can negatively impact your credit score. One of the easiest ways to protect your credit score is to make all payments on time.

Pay Off Debt

The amount of debt that you have also matters. It would help if you focused on paying off as much debt as you could. Not only will paying off debt improve your credit but there will be fewer bills for you to worry about while you are trying to pay your mortgage.

How Do I Know What I Can Afford?

It is essential that you have a clear understanding of how much you can afford to pay each month. In many cases, lenders will approve you for a loan that you may not be able to repay comfortably. Before you begin your home search, set some parameters for how much you can spend. There are many online calculators available that show you want your monthly payment will be.

You can take a guess at the cost of the home, interest and even include taxes and insurance to determine how much you will pay each month.
You can also put in a down payment so you can see how that impacts your monthly payment. You can change the amount of interest to see how just one point of interest impacts your monthly payment.
You can adjust the price of the house, too. This allows you to see the numbers and helps you understand what you can afford. You must be honest with yourself when it comes to determining if you can afford the house. You do not want to realize three years after buying the house that you just cannot afford it.

What Factors Should I Consider When Applying for a Mortgage?

Before you embark on this journey, you should pull your credit report. You want to see what a potential lender is going to see when they pull your credit report. This gives you a clear understanding of where you need to improve.

You should also get all your docume nts to gether to supply to the lender, especially if you do not have the best credit. This includes tax returns, pay stubs, W-2s, and a list of all your debts. If you have something on your credit score, such as a charge off, you may want to have a statement explaining what happened. Sometimes, the lenders can be understanding if there is a valid reason for a bumpy credit score. You may also want to consider having a cosigner for your mortgage. If your cosigner has great credit, it will help you get a better interest rate.

Looking For More Help?

There is a lot to think about when it comes to obtaining a mortgage. If you can be prepared ahead of time, it may help you move smoothly through the process. If you feel like you still have a lot of questions, or need additional help, visit us at the Goalry Mall. We have an abundant amount of resources to help you.

We can help you pull your credit report and understand what it means. We can help you create a budget to pay down your bills and save for a down payment. There is no limit to the amount of help we can provide. Come check us out today and see how we can help you.

Create Your Own Path to Success. The Creditry Store Is Here to Help!

Conclusion

Looking for a house can be a fun and exciting time, as long as you are well prepared. If you do not do just a little bit of homework upfront, you could find yourself trying to purchase a house you cannot afford. However, if you set your expectations properly, you can find the perfect house for you that you can afford without pulling yourself into a large amount of debt from which you cannot recover. This article helps you along the way by giving you some solid steps to take when considering purchasing a house.