Can I Buy a Home with a Credit Score of 700?
Absolutely! A credit score of 700 is good in the "good" category, according to the FICO.
In fact, a credit score of 700 is high enough for almost any type of mortgage.
So the question really arises as to what type of loan is best for you. And how can you get the lowest mortgage rate?
Here are some tips to help you find the best deal.
Check Your Eligibility to Buy a Home (Aug 31, 2020)
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Best Mortgage Types For A Credit Score Of 700
According to FICO, the score of 700 is "close to or slightly above the US consumer average".
And, says FICO, "most lenders consider this a good score." That includes mortgage lenders.
Provided you have stable income and a manageable amount of existing debt, you have a good chance of being approved for most types of home loan.
Keep your priorities in mind when choosing the right one for you. Do you want:
The lowest rate? A smaller deposit? No Mortgage Insurance? An Extra Large Loan?
Each type of loan offers unique benefits that can help you achieve one or more of these goals.
Here are some of your best options:
A conventional mortgage is often best for those with a credit score of 700 or higher. (You can generally qualify with a score above 620.)
The benefits of a traditional loan include:
Buy a home with only 3% off Low interest rates, especially those with a higher credit score. Higher credit limits than the FHA option to avoid or cancel mortgage insurance later
The big advantage of choosing a traditional loan over an FHA loan is that the mortgage insurance can be canceled later, reducing your monthly payments.
And if you pay a 20% down payment with a traditional loan, you don't have to pay for mortgage insurance at all.
Almost all lenders offer traditional loans, so you have a choice between the market and the flexibility to buy cheaper interest rates.
Check Your Traditional Loan Eligibility (Aug 31, 2020)
VA loans are guaranteed by the Department of Veterans Affairs. You can easily qualify for someone with a credit score of 700, but you must be a veteran, service member, or military service to be eligible.
For those who qualify, VA loans are often the best deal possible.
VA mortgage rates are typically the lowest of all major loans. And you don't have to pay a deposit at all, although you are welcome to make a deposit.
Better still, after your initial financing fee, you stop paying ongoing mortgage insurance.
So the monthly payment for a VA loan is lower than for an FHA loan or a conventional loan with an equal down payment.
Check Your VA Loan Eligibility (Aug 31, 2020)
Some lenders offer jumbo mortgages for those with credit scores in the 700 range.
A jumbo loan is over $ 510,400 in most of the United States. Many lenders provide jumbo loans to buyers in the high-end market in the range of $ 1 million to $ 2 million.
Note that a minimum score of 720 is common for jumbo loans as well. So if you are in need of a large mortgage it may be worth giving your score a little boost before applying. That way you have more options when shopping, and probably a lower price.
Check Your Jumbo Loan Eligibility (Aug 31, 2020)
USDA loans are guaranteed by the U.S. Department of Agriculture. They are meant to help home buyers in rural and suburban areas, but are much more common than most people think.
In fact, homes are eligible in 97% of the United States map. However, you need an income near or below the median for the area in which you are buying.
The big plus, however, is that you don't have to pay a deposit at all. And mortgage insurance is cheaper for a USDA loan than an FHA loan
Check Your USDA Loan Eligibility (Aug 31, 2020)
FHA loans are generally intended for home buyers with lower credit, 580+. As a result, they probably aren't best for those with a 700 credit score.
With a score of 700, you will likely qualify for a traditional loan with cheaper mortgage insurance and an even lower down payment.
There are only a few exceptions to this rule:
If you have a higher level of debt, an FHA loan might be better. FHA is more forgiving of high debt to income ratios. The same goes for Fannie Maes HomeReady and Freddie Macs Home Possible loans (both conventional). So compare all of your optionsIf you are looking to buy a fixer-upper home, an FHA 203,000 loan might be best. These allow you to buy a rundown home and take it off on a single loan. They are often cheaper than other home renovation loans
If you are on the fence, please see this article on Traditional Loans with a 3% Reduction vs. 3.5% FHA Loans.
Check Your FHA Loan Eligibility (Aug 31, 2020)
Loans without mortgage insurance and down payment assistance
A final strategy to consider is a "portfolio loan" from a bank or mortgage lender.
These are specialty loans for which lenders set their own rules. So you don't have to meet the requirements of regulators like Fannie Mae and Freddie Mac.
This means that they often have special advantages, such as:
Therefore, a portfolio loan can be a good option if you have a credit score over 700 but are struggling with other mortgage requirements such as a down payment.
With a Credit Score of 700 Will You Get a Good Mortgage Rate?
As a rule of thumb, the higher your creditworthiness, the lower your mortgage rate.
However, your score isn't the only thing that determines your interest rate. Factors like your down payment and your debt also make a difference. And your rate will vary depending on the lender and loan type.
Here are a few things to consider when evaluating purchases with a credit score of 700.
How much a high score can save you
On their website, FICO has a loan savings calculator that you can use to see how you can save money with a higher score.
We gave it a try and selected a 30 year fixed-rate mortgage worth $ 200,000.
This is how much the calculator estimated that you would be spending on interest (overall) based on creditworthiness:
760-850 points – $ 84,000700-759 – $ 92,400 680-699 – $ 99.200660-679 – $ 107,500
When you have a higher credit score, you can save a lot of money. This is why many people try to improve their creditworthiness before buying a home.
However, with a score of 700, you're already paying less interest than many home buyers.
And you can always refinance at a lower interest rate as your scores improve over time. In fact, paying a deadline for a mortgage is one of the best ways to increase your credit score.
Mortgage lenders set their own rules for loans and interest rates
This is a pretty good rough guide of the difference a higher score can make on your borrowing costs.
However, lenders typically don't use the same credit score ranges as FICO.
They often have tighter credit levels. This can be beneficial for borrowers as many lenders have a tier that starts at 720.
Just increasing your score to 720 could be enough to get you into better credit and make great savings.
Let's say your current score is 710 or 715. This means that you may only need 5 or 10 more points to advance to a higher level. And that could potentially save you thousands.
Should it take you two or three months to work on your credit before applying for your mortgage?
Well that's up to you. If you'd like, we've got some tips on how to move your score quickly.
Should You Try To Increase Your Credit Score Before Buying a Home?
With a good credit score, you can save thousands of dollars – even tens of thousands – in the long run.
As mentioned above, 700 is in the "good" range for FICO scores. So lenders are unlikely to judge you for it.
But a FICO score of 700 may not give you much advantage when shopping for mortgage rates, either. In fact, mortgage data firm Ellie Mae estimates that more than 70% of conventional home buyers have FICO scores above 750.
If you want the lowest possible odds, it may be worth adding at least a few points to your score before applying.
Strategies to get your score above 700
The biggest element in calculating your FICO score is paying bills on time. This is 35% of your score.
But with your 700 FICO score, you probably already know that. So let's say you keep doing this.
What else can you do Well, here are some tips and tricks:
Pay off your credit card debt – You must keep any card balance below 30% of the credit limit. Below this 30%, further improvements will only give you a few points. But a few points are a lot in these circumstances. Coincidentally, 30% is also the proportion of your score that card balancing affects
Do not open new credit accounts – Each loan application gives your score a small hit that it usually recovers from within a few months. But separately, it will also lower the average age of your accounts. And that age adds 15% to your credit score
Don't close old credit accounts – Closing an old account unnecessarily will also reduce the average age of your accounts
Check your credit reports – Get free copies of only annualcreditreport.com and go through them carefully. Mistakes are common, and correcting them can make all the difference
Tip: Lenders may see a lower credit score than you
You may be monitoring your creditworthiness so that you know exactly what you are working with when you apply for a mortgage.
But then you speak to a mortgage loan officer and he'll tell you he's seeing a lower score than you thought.
In fact, this happens quite often.
Most people are unaware that they have dozens of credit scores. And the score you see from your bank or credit reporting service is just one of them.
It is common for your mortgage credit score to be lower than what you see on other platforms. This is because lenders use a tougher rating model.
It's also quite common for your mortgage credit score to be lower than what you see on other platforms.
This is because mortgage lenders often use a tougher credit rating model. A home loan is a lot of money, and the lender wants extra assurance that you can pay it back.
So if your score is a little lower than expected, don't be surprised.
And don't be discouraged! It is likely that you will still qualify for most loans with a score of just under 700. There are many ways to add a few points to your score and then take out a mortgage again.
Your next steps
You did a great job achieving a credit score of 700. You are probably spot on for qualifying for mortgages.
Next, consider what type of loan you would like. Then browse a few different lenders to find the best deal.
700 is a good score – and with a little effort you should be able to find a mortgage lender who can give you a competitive interest rate and get you into the home you want.
Check your new plan (August 31, 2020)