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Tips for buying a house with a 700 credit score

Peter Warden
The Mortgage Reports editor

Can I buy a home with a 700 credit score?

Absolutely! A 700 credit score is well within the “good” category, according to FICO.

In fact, a 700 credit score is high enough for almost any type of mortgage.

So the question really comes down to, which type of loan is best for you? And how can you get the lowest mortgage rate?

Here are a few tips to help you find the best deal.

Verify your home buying eligibility (Sep 19th, 2020)

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Best mortgage types for a 700 credit score

FICO says a 700 score is, “near or slightly above the average of U.S. consumers.”

And, says FICO, “most lenders consider this a good score.” That includes mortgage lenders.

So provided you have a steady income and manageable existing debt burden, you stand a good chance of being approved for most types of home loans.

When choosing the right one for you, think about your priorities. Do you want:

  • The lowest rate?
  • A smaller down payment?
  • No mortgage insurance?
  • An extra-large loan?

Each loan type offers unique benefits to help you meet one or more of these goals.

Here are some of your best options:

Conventional mortgage

A conventional mortgage is often best for those with a credit score of 700 or higher. (You can generally qualify with any score above 620).

Benefits of a conventional loan include:

  • Buy a house with as little as 3% down
  • Low rates, especially with a higher credit score
  • Higher loan limits than FHA
  • Option to avoid mortgage insurance or cancel it later

The big benefit of choosing a conventional loan over an FHA loan is that mortgage insurance can be canceled later on, which will reduce your monthly payments.

And if you make a 20% down payment with a conventional loan, you won’t have to pay for mortgage insurance at all.

Pretty much all lenders offer conventional loans, so you’ll have your pick of the market and the flexibility to shop for lower rates.

Verify your conventional loan eligibility (Sep 19th, 2020)

VA loan

VA loans are guaranteed by the Department of Veterans Affairs. You can easily qualify for one with a 700 credit score, but you must be a veteran, service member, or military-affiliated to be eligible.

For those who do qualify, VA loans are often the best possible deal.

VA mortgage rates tend to be the lowest of all mainstream loans. And you don’t need to make any down payment at all, though you’re welcome to provide one.

Better yet, you don’t pay any continuing mortgage insurance after your initial funding fee.

So the monthly payment for a VA loan will be smaller than an FHA loan or conventional loan with an equal down payment.

Verify your VA loan eligibility (Sep 19th, 2020)

Jumbo loan

Some lenders will provide jumbo mortgages to people with credit scores in the 700 range.

A jumbo loan is anything above $510,400 in most parts of the U.S. And many lenders will make jumbo loans as large as $1-2 million for buyers in the high-end market.

Note, a 720 minimum score is also common for jumbo loans. So if you need a large mortgage, it might be worth raising your score a bit before applying. That way you’ll have more options when shopping and likely net a lower rate.

Verify your jumbo loan eligibility (Sep 19th, 2020)

USDA loan

USDA loans are guaranteed by the US Department of Agriculture. They’re meant to help home buyers in rural and suburban areas, but they’re much more widely available than most people think.

Indeed, homes in 97% of the map of the United States are eligible. But you’ll need an income close to or below the median for the area in which you’re buying.

Still, the big plus is that you don’t have to make any down payment at all. And mortgage insurance is cheaper for a USDA loan than an FHA loan

Verify your USDA loan eligibility (Sep 19th, 2020)

FHA loan

FHA loans are generally intended for home buyers with lower credit, starting at 580. So they’re likely not best for someone with a 700 credit score.

With a 700 score, you’re likely to qualify for a conventional loan with cheaper mortgage insurance and an even smaller down payment.

There are just a couple exceptions to that rule:

  • If you have higher debt, an FHA loan might be better. FHA can be more forgiving of a high debt-to-income ratio. But the same goes for Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loans (both conventional). So compare all your options
  • If you want to buy a fixer-upper home, an FHA 203k loan might be best. These allow you to buy a run-down home and do it up with a single loan. They’re often cheaper than other renovation loans

If you’re on the fence, see this article on 3%-down conventional loans vs. 3.5% FHA loans for more information.

Verify your FHA loan eligibility (Sep 19th, 2020)

No-mortgage-insurance loans and down payment assistance

One last 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 they don’t have to follow requirements set by regulators like Fannie Mae and Freddie Mac.

That means they often have special perks, like:

Thus, a portfolio loan might be a great option if you have a 700+ credit score but have a tough time with other mortgage requirements, like making a down payment.

Will a 700 credit score get you a good mortgage rate?

As a general rule of thumb, the higher your credit score is, the lower your mortgage rate.

But your score isn’t the only thing that determines your interest rate. Factors like your down payment and debt make a difference, too. And your rate will vary by lender and loan type.

Here are a couple things to keep in mind when rate shopping with a 700 credit score.

How much a high score can save you

On its website, FICO has a loan savings calculator that lets you see how a higher score can save you money.

We tried it out, selecting a $200,000, 30-year, fixed-rate mortgage.

Here’s how much the calculator estimated you’d spend on interest (in total) based on credit score:

  • 760-850 score — $84,000
  • 700-759 — $92,400
  • 680-699 — $99,200
  • 660-679 — $107,500

There’s big money to be saved if you have a higher credit score. That’s why many people try to improve their credit before buying a house.

However, with a 700 score, you’re already paying less in interest than many home buyers.

And you can always refinance into a lower rate if you improve your scores over time. In fact, faithfully paying a mortgage is one of the best ways to increase your credit score.

Mortgage lenders set their own rules for credit and interest rates

That’s a pretty good rough guide to the difference a higher score can make to your costs of borrowing.

But lenders don’t typically use the same credit score ranges as FICO.

They often have narrower credit ‘tiers.’ And that can be beneficial to borrowers, as many lenders have a tier that starts at 720.

Just getting your score up to 720 might be enough to put you in a better credit tier and earn you big savings.

So suppose your current score is 710 or 715. That means it might take only 5 or 10 more points to push you into a higher tier. And that could possibly save you thousands.

Should you take two or three months to work on your credit score before you apply for your mortgage?

Well, that’s up to you. But if you want to, we have some tips for moving your score quickly.

Should you try to raise your credit score before buying a house?

Having a great credit score can save you thousands of dollars — even tens of thousands — in the long run.

As we mentioned above, 700 is in the “good” range for FICO scores. So lenders aren’t likely to ding you for it.

But a 700 FICO score might not give you much of an edge when shopping for mortgage rates, either. In fact, mortgage data firm Ellie Mae estimates that more 70% of conventional home buyers have FICO scores over 750.

If you want the lowest rate possible, it might be worth trying to raise your score by at least a few points before applying.

Strategies to raise your score above 700

The single biggest element in the calculation of your FICO score is the timely payment of bills. This makes up 35% of your score.

But, with your 700 FICO score, you probably already know that. So let’s assume you’ll continue doing so.

What else can you do? Well, here are some do’s and don’ts:

  1. DO pay down your credit card debt — You must keep each of your card balances below 30% of its credit limit. Below that 30%, further improvements will earn you only a few points. But a few points is a lot in these circumstances. By coincidence, 30% is also the proportion of your score that card balances influence
  2. DON’T open new credit accounts — Each credit application gives your score a small hit from which it will usually recover within a few months. But, separately, it will also pull down the average age of your accounts. And that age contributes 15% of your credit score
  3. DON’T close old credit accounts — If you close an old account unnecessarily, that, too, will reduce the average age of your accounts
  4. DO check your credit reports — Get free copies only from annualcreditreport.com and go through them carefully. Errors are common and getting them corrected can make a big difference

For more tips, see ‘How to raise your credit score fast’.

Tip: Lenders might see a lower credit score than you do

Perhaps you monitor your credit score, so you know exactly what you’re working with when you apply for a mortgage.

But then you talk to a mortgage loan officer, and they tell you they’re seeing a lower score than you thought you had.

In fact, this happens pretty often.

Most people aren’t aware 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’s common for your mortgage credit score to be lower than the score you see on other platforms. This is because lenders use a tougher scoring model.

It’s also pretty common for your mortgage credit score to be lower than the score you see on other platforms.

That’s because mortgage lenders often use a tougher credit scoring model. A home loan is a lot of money, and lender want to be extra sure you’ll be able to pay it back.

So, if your score is a little lower than you thought, don’t be surprised.

And don’t be discouraged! You’re still likely to qualify for most loans with a score slightly below 700. And there are plenty of ways to raise your score a few points, then try for a mortgage again.

Your next steps

You’ve done a great job by achieving a 700 credit score. You’re likely right in the sweet spot for mortgage qualifying.

Next, think about what type of loan you want. Then shop around with 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 will give you a competitive rate and get you into the home you want.

Verify your new rate (Sep 19th, 2020)

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