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What credit score do I need to buy a house / mortgage? (FICO Scores for Standard & FHA Home Loans)



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hey i'm adam jessica from problem in

EECOM what credit score do you need to

qualify for a mortgage that's what we're

going to talk about in this video but

before we do I'm gonna ask you to please

subscribe to this YouTube channel if you

have not already and if you have already

I thank you for doing so so what credit

score do you need to qualify for a

mortgage we will talk about the numbers

but I also want to say right up front

that your credit score is most certainly

not the only factor that is going to

come into play when you're trying to

qualify for a mortgage so we'll talk

numbers but then we'll also talk about

the other considerations that are

probably just as important as what your

credit score is all right so we talked

about the two main types of mortgages

here when we talk about the credit

scores that you might need to qualify

there's conventional mortgages and there

are FHA or Federal Housing

Administration mortgages we're going to

talk about the conventional mortgages

first these are the mortgages that come

from banks or other mortgage lenders

that do not have any backing from the

federal government so the money that

they are lending out to you they are

taking a bigger risk with there's no

insurance that is going to help them if

you don't pay it back so they are going

to require a higher credit score so for

conventional loans generally the bottom

of the credit score scale that you would

have to get to in order to potentially

qualify would be a 620 credit score now

obviously you would rather be higher

than that 620 is going to you know maybe

just be the price of entry to get you in

but you probably going to end up with

higher interest rates than you would if

you had a higher credit score and even

your chances of qualifying will be worse

than if you had a higher credit score

but 620 is generally the bottom a place

that you need to get to in order to

potentially qualify for a conventional

mortgage loan now if you can get to 720

that is generally thought of as the

place where you are going to get the

best rates from most lenders now

sometimes there will be a little bit

higher 760 sometimes as seen as the

place to get the very best rates but 720

oftentimes is good enough and if you can

get to 760 that will get you you know

pretty much anything in terms of the

best rates beyond 760 really isn't going

to do a whole lot more for you but 620

to get in 7:24 mostly the best rates

seven 60s probably a guarantee of the

best rates from just about any lender

now when I give you those numbers

talking about credit scores for

mortgages you should know that the

credit scores that are used for

mortgages are slightly different than

what you might think of as a credit

score often times so if you are getting

free credit scores from Credit Karma or

a free FICO score from your credit card

those are sort of the general usually

FICO 8 or FICO 9 credit scores that are

going to be a little bit higher than the

FICO mortgage scores that are actually

going to be used so when we're talking

about a 720 in mortgage scores you

probably most of the time would think of

that as being more like a 730 or 735 in

terms of the sort of general FICO scores

and vantage scores can vary from FICO

scores as well so probably what you want

to be doing is thinking about FICO

scores that are those mortgage scores

and if you're just sort of shorthand

thinking about what your credit score is

you might want to take a few points off

of that to think about what your

mortgage score probably is now you can

actually get your mortgage scores from

FICO directly you can go to my FICO and

you can buy them actually did another

video where I showed what you get from

my FICO including those mortgage scores

now you might know that you have more

than one credit score because there are

three different major credit reporting

agencies and the credit scores that they

have for you are all slightly different

so you're gonna have a slightly

different credit score from TransUnion

to Equifax to experience so when you

apply for a mortgage loan the mortgage

company is going to look at your

application and they are going to pull

all of your credit scores all three of

your mortgage credit scores from

TransUnion from Equifax from Experian

they're going to get them usually in a

single sort of document that is called a

residential mortgage credit report and

what they are going to do is they are

going to look at all of them and they

essentially are going to throw out the

top score they're going to throw out the

bottom score and that middle score is

what they're going to use to use as sort

of a shorthand for what your credit

score is so

don't them out they just take the middle

one and that is your credit score now

many people when they are getting a

mortgage they're not necessarily getting

that mortgage alone so if you are

getting a mortgage with someone else and

you both plan to be on the mortgage deed

and to have both of your incomes

assessed and all of that as part of the

mortgage process well then you obviously

are going to have credit scores from two

people and the person who has the worse

credit scores of the two of you that's

who they're going to go by so if you for

example have better credit scores than

your husband wife whoever may be buying

a house with you if they have worse

credit scores it's going to be their

middle credit score that is actually

used so you should know that in advance

so if you have a big disparity between

the higher and the lower in terms of the

two people that are going to be on all

the financial documents well then you

might want to consider actually having

the person with the higher credit score

be the only name on the documents

especially if that person can qualify

for the mortgage based on their own

financials even without you know the

financial help that would come from the

second person within that relationship

all right so that's the deal with

conventional mortgages and also the deal

with how credit scores are used within

the application process now let's talk

about FHA loans so FHA loans are loans

that are still given by banks and

mortgage companies and sort of

traditional lenders but they are loans

that are insured against loss by the

Federal Housing Administration known as

FHA and because they are insured against

loss that means the standards to qualify

are lower than they would be for the

conventional mortgage loan so for FHA

mortgage loans that the credit score

minimum is 580 in most cases if you put

down at least 3.5% as a down payment on

that loan and now there are FHA loans

that go down to 500 but you have to put

down at least a 10% down payment in

order to get those and not all lenders

even want to deal with those and even

though those FHA loans are insured

against loss by the gun

Hermant the banks or other mortgage

lenders still don't want to just give

them out to anyone because they don't

want to just ensure against loss they

want to make a profit right so they are

still going to do the general

underwriting that they would do for

anyone even for a conventional loan to

see who is a greater risk than somebody

else so the whole FHA program was put

into place to try to help people buy

homes who maybe didn't have as much of a

track record and didn't have as high of

credit scores but because the banks are

still taking on a measure of risk it's

still their money being lent out even if

it's insured against loss they do have

some latitude to go outside of what the

qualifications normally are for an FHA

loan so when I say 580 is the floor to

get in it usually is the floor but it is

possible that some lenders will give FHA

loans but that floor could be slightly

higher now while the FHA loan program is

a nice thing for people that may be of

lower income and are looking to get into

a more modest home with a more modest

loan you should also know that FHA loans

have higher interest and there are going

to be mortgage insurance payments that

come into place or you're going to pay

more for those loans than you would if

you could qualify for a conventional

mortgage loan so even though you can get

one of those loans with a lower credit

score if you could get yourself up past

620 or even better you get yourself up

past 720 then you maybe could qualify

for a conventional mortgage loan and you

could get much better rates now like I

said at the beginning of this video your

credit score is not the be-all end-all

when it comes to being approved for a

mortgage loan there are other things

that come into play that are probably

just as important and those are going to

include things like your job history

your income your debt load any bad stuff

lurking on your credit reports there's a

lot of other things that a mortgage

company is going to look at before they

say yes now one of the most important

pieces is going to be your monthly debt

to income ratio and what that means is

the amount of your fixed payments that

you have to make every month compared to

the gross

income you make so for example let's say

you made $60,000 a year which would mean

you made $5,000 gross every month now

let's say you had this new mortgage and

that was going to cost $1,500 a month

sort of all in with your mortgage let's

say you had a three hundred dollar car

payment and you had $200 of minimum

payments on your credit cards I'm

oversimplifying here but you put those

things together and you would have two

thousand dollars in fixed payments that

you're going to have to make every month

so that two thousand dollars divided by

that five thousand dollars in gross

income for the month that's before taxes

that's gross income so two thousand

dollars divided by five thousand dollars

that is going to be a forty percent debt

to income ratio and that is right on the

borderline sort of of where the mortgage

companies would consider lending to you

so many cases they use forty three

percent as that debt to income ratio

that is the maximum although there are

times when lenders will go a bit over

that as well however for you for most

people getting into the forty percent

forty three percent debt to income ratio

is pretty high and it's not necessarily

going to feel all that comfortable in

your daily life to be up that high so

you definitely want to be lower if you

can so if you can get that debt to

income ratio more down into the low 30s

that would really be ideal because then

you could pay your bills and feel like

you have a level of comfort every month

not feel like you are just right on the

edge of you know being able to keep all

the balls in the air and pay for all the

things that you need to so those are

probably the important things to know

the debt to income ratio or DTI and your

credit score are obviously going to play

a big part in whether you get approved

however your mortgage lender is usually

going to take a pretty deep dive on you

so if there are other things lurking in

your credit report that they don't like

the looks of those could mean that your

mortgage gets declined even if your

other numbers look okay so one of those

is going to be if you have late payments

on your other loans especially within

the

last year now when I say late payments I

don't mean you paid five days later you

paid seven days late because you forgot

the due date and just you know screw it

up I'm talking about if you paid thirty

days late or 60 days late long enough

for the company that you owed money to

to actually put that on your credit

report as a late payment so a few days

is not going to show up on your credit

report thirty days is going to show up

on your credit report so you want to

make sure you don't have any of those

late payments within that last year

before you're going after that mortgage

charge-offs

tax liens anything on your credit report

where you owe money and someone is still

trying to collect that money from you

you may have to pay off that money to

even qualify for the mortgage in many

cases and even if you don't absolutely

have to pay it in order to qualify many

times you're gonna try it want to try to

do as much as you can to alleviate those

things whether it is paying offered is

coming to some agreement with the loan

company or maybe disputing things that

are not true in order to get that

mortgage to go through if you have a

foreclosure or a bankruptcy in your

recent past those could ding you from

the start regardless of what your other

numbers look like now depending on the

type of mortgage loan you're going after

the amount of time that needs to go by

before you could potentially qualify

could be different but probably no

lenders are gonna look all that

favorably on someone that has had either

of those things happen in the last five

years and bankruptcies could go even

longer in some cases they have to go

even longer before you could qualify for

a new mortgage there are obviously other

things to know and everyone's journey to

get that mortgage finally approved is

going to be slightly different depending

on what you have going on on your credit

report but those are the big things to

know those are the numbers to try to

shoot for in order to get yourself in a

good place where things are squared away

and you can increase your chances of

being approved if you have any questions

or comments please put them in the

comment section below

otherwise I thank you for watching and

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