What's the required credit score for a home loan?
It’s important to know that every lender has its own method of determining risk and choosing who is eligible to receive a loan based on their credit score ranking, so what might be an unacceptable score for one could be an accepted score by other.
Your credit score is not the only data that is considered by lenders to determine whether you qualify for financing, but it will help shape your mortgage loan interest rate and ability to get financing. And the difference between a 4.5% interest-rate mortgage and a 5% interest-rate one could be thousands of dollars.
Still, it’s getting a little easier for home buyers to get approved for an FHA-backed home loan. Lenders are now approving mortgage applications for borrowers whose credit scores are 580 or better.
On average, a score of 650 or below tells the lender that there is a higher risk of not getting their money back. In such cases, the lender can offer lower quantities at higher interest rates to shield himself from the risk. With credit scores of 730 or higher, loan payments are usually more affordable and interest rates are lower. A credit score of 800 or more guarantees the best conditions for the applicant.
To recap, although some lenders require a minimum 580 credit score to provide home financing, a 730 credit score is considered to be low-risk for lending companies, so try to keep it around that level to get financing at good terms.