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What Credit Score is Needed to Buy a House

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Credit Score Requirements When Buying a House

Buying a house is a big life decision and a complex operation with many important steps. Your credit score is one of the essential elements needing consideration during this process and before deciding to purchase a house.

We have gathered here the essentials about credit score, what credit score you need to buy a home, and how to acquire it. Buying a house with a bad credit score is challenging but not impossible.

For most people, it makes sense to work to improve your credit score before purchasing a home. Let’s take a look at some of the essential considerations.

You’ll have a much better understanding of the credit score you’ll need to buy a home by the time you’re done reading.

What Credit Score You Need

The credit score represents several points that range from 300 to 850, and it speaks about your creditworthiness to all your potential lenders and financial partners.

Your credit score is determined by several factors linked to your overall financial behavior. You can think of it as your money and transactions history.

These credit score points are given by the various credit agencies and companies you have previously worked with. However, keep in mind that not every credit organization and type of loan you ever took grants you the same score.

Also, each of these financial partners has a different set of credit score requirements to grant you the loan for a new home.

Here are the particularities, depending on the type of loan that you intend to get:

Credit score to buy a home

Conventional Loan

For this type of loan, you should come before your future lender with a credit score of a minimum of 620. This is if you want to get a loan under optimum terms and conditions. Having a good credit score really comes in handy with a conventional mortgage.

Not all is lost, even if you are under the 620 credit score. However, you will most likely have to go for a higher than usual interest rate and a higher down payment in this case.

FHA Loan

This is a solution for those who do not have a top score or don’t have significant money for a down payment. The FHA is a type of loan guaranteed by the Federal Housing Administration. They also request a minimum credit score, amounting to 580.

FHA loans are among the most popular types of mortgages for first-time homebuyers due to the lower down payment requirements. If you are purchasing a fixer-upper, a rehab loan known as an FHA 203k is an excellent choice for properties that need work.

VA Loan

The VA loan is backed up by the government and is an option for veterans, qualified service members, and spouses. In this situation, there is not a default minimum credit score limit. However, some lenders have specific requirements.

For example, Rocket Mortgage ® will ask its partners a minimum of 580 credit score before granting a VA loan.

USDA Loan

If you plan on purchasing a house in a rural or suburban area, while your income is below 115% of the average income in the respective area, you can go for a USDA loan guaranteed by the government.

They require a minimum 620 credit score. However, ideally, you should have a score of around 640 to qualify for the best terms and conditions. However, keep in mind that currently, there are no USDA loans available.

Better Understand Your Credit Score

It is not enough to have an idea about what credit score is required in each situation. It is of utmost importance to know how the rating is granted and how you can improve your credit score.

An important component of your credit score is the credit report. Meaning a detailed personal credit history. This is an important document since any mistake here will bring down your scores.

These credit scores are registered within the database of three main financial agencies, including Experian, Equifax, and Transunion. Any potential lender will check with them whenever they analyze whether or not you qualify for their loans.

You can easily check your current credit score with each of them, as you are entitled to ask for your report once per year, free of charge.

It’s highly recommended to check your credit score each year, even if you do not intend to make a home purchase right away. You need to be sure that you have a good credit score and take the right actions to improve it if it doesn’t look terrific. But you also need to check the credit report for any potential errors.

Once you know where you’re at, you have a better idea of what loan to apply for and what other measures to take to improve your chances of getting approval.

FICO ® Score Vs. Credit Score

The three national financial reporting agencies we mentioned above are Equifax, Experian, TransUnion. They all operate in the same manner. They gather information from banks, credit unions, vendors you collaborate with about every financial transaction that you make, about any amount of money you pay on the due date or not.

They compile the data, and the result is your credit score. Several systems and formulas calculate the credit score, and not all lenders calculate it the same.

Models like FICO® Score and VantageScore®, used as a tool by many potential lenders.

Usually, all the financers value most of all these elements:

  • Making your payments on time or earlier.
  • What do you do with the credit amount given.
  • How much credit history you have, the longer, the better.
  • New credit partnerships.
  • The credit types you got so far.

Tips to Increase Your Credit Score

If you want to purchase a new home, the smartest idea is to have the best chances to get a good loan regarding terms and conditions. There are numerous things to consider as a first-timer when you don’t have the best credit. Here are some tips to increase your credit score before purchasing a house:

Pay-Off Outstanding Debts

Lowering your debut is the best way to improve your credit rating. Pay in full, as fast as possible, your debts. Your financial risk factor will drop. The lenders also appreciate the element called credit utilization ratio.

The lender will prefer borrowers who do not rely much on their cards, especially when purchasing a home. This ratio is calculated by dividing the amount you owe to your spending power.

Paying Bills On Time

Mortgage companies and other lenders are also interested in the timely payment of debt. How you pay debts back is what the vendors and banks report to the financial bureaus. So be careful with every single bill you have, from utilities to phone and online purchases.

Do Not Apply for Large Sums

When buying a house, it is essential to keep your other spending habits in check. Taking on additional debt could, in fact, cause you not to be able to get a home loan.

Use a Credit Improvement Company

There are a few companies that will offer you financial advice for free. One of them is Credit Karma. Credit Karma helps by giving you sound financial advice. Using their services will tell you exactly what you can do to increase your credit scoring.

What Else You Need to Know About The Importance of Your Credit Score

In any situation you might be right now about your credit score, do not worry. There are numerous lenders with offers matching your condition.

Plus, the credit score is not the only element needed for you to take the appropriate loan for your new home. Mortgage lenders will also take into account the following:

Debt-To-Income-Ratio

This is the percentage of the gross monthly income needed to pay the debt. The smaller the debt compared to your income, the lesser of a risk you are to lenders.

Loan-To-Value Ratio

Also known as LTV, this is an indicator assessing your risk level. It is calculated by dividing the loan amount by the house price. The LTV ratio drops if you bring in a consistent down payment.

Income and Assets

The lenders need to be assured that you have a continuous flow of income to pay your monthly debt on time. They often ask you to bring them proof of your income and assets over the last 2 years.

Final Thoughts

Many folks don’t have top-notch credit scores who get home loans. While it is advantageous to have a better score, it may not stop you from purchasing.

However, building better credit scores is always worthwhile as it will bring down the total cost of your purchase through lower interest rates. Once you have improved your credit standing, you can plan for refinancing your current mortgage.

You will undoubtedly be able to get more favorable terms that will save a tremendous amount of money in the long run.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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