Yes you do have choices. You do not necessarily have to have a credit score of 640 or higher, but it is helpful. Typically, loans for borrowers from 620-639 cost more in terms of a pricier interest rate them loans for borrowers who have better credit scores. Bottom line, if you have the income to offset the liability, and you can qualify for financing, the credit score you need to buy house is 620.
Two Program With This Credit Score
FHA: only requires a down payment of 3.5% and the seller can pay up to 6% of the closing costs on the home purchase. Eyeing a house online for $350,000? You’ll need a down payment of at least $12,250. More often than not the down payment comes from a retirement account such as an IRA or employer paid 401(k). If you been working at your job the last couple of months, high chance your 401(k) has funds available for a down payment..
Conventional: requires a minimum down payment of 5% and seller can pay up to 6% of the closing costs associated with the home purchase. However, because of the inherently higher costs associated with this type of loan, best to have 20% down or it least 15% down. Here’s why the interest rate and costs associated with financing on a conventional loan with this type of credit score make the loan very pricey. In other words, in most cases loans in this bucket are going to hit the federal 1.5% high cost loan level making the loan potentially an fundable with less than 20% down using conventional financing. The only way to reduce the higher annual percentage rate is to increase the down payment and/or reduce the purchase price, with most weight being given to reducing the loan amount ( i.e. increasing down payment).
Do you need a higher credit score to buy a house? No, but it will cost you
Be prepared on average to pay it least .5% higher in rate than if your credit score was say 700 or higher especially on the conventional loan side. FHA loans also have a risk-based pricing premium which is the higher premium for the increased risk, lower credit score, but the effects with an FHA loan are more minimal than on a conventional loan. It’s unlikely using an FHA loan you’d run into high cost loan issues whereas the conventional side it’s almost guaranteed with less than 20% down.
If you’re looking to buy house in Santa Rosa or the California market, we can help start today by getting a complementary loan pre-qualification so we can better understand how to best structure your pre-approval.