Credit Score Needed for Buying a Home in 2008

Credit reports and scores are a popular topic among home buyers these days. In truth, this has always been an important topic for people buying a home, but it's even more important today.

After the subprime lending crisis that came to a head in 2007, the federal government began to tighten down on mortgage lenders. In response to the alarming number of mortgage foreclosures, the government stepped up regulation of lenders. And as a result, those mortgage lenders will pay closer attention to a borrower's credit score today than they did a few years ago.

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So what kind of score does a home buyer need in the current economy? As in the past, this depends on the individual mortgage company involved and their particular lending practices. But one thing is for certain -- a better credit score will certainly make your home buying process easier. It will help you qualify for a loan quickly, and it will also help you secure the best interest rate on that loan.

Credit Score Needed for Buying a Home in 2008

Let's Get Specific - The Average Score in the U.S.

Ask ten different financial experts what the average credit score in the U.S. is, and you will probably get ten slightly different answers. With that said, most will agree that the average score falls between 650 and 700. Keep in mind that higher is better.

Additionally, a score of 720 or higher is ideal for the home buying purposes. You will have no trouble qualifying for a mortgage loan with a score over 720, and you'll also quality for the best interest rates and terms. This is key, because it translates into a smaller mortgage payment each month. And who doesn't want that?

Improving Your Credit Before Buying a Home

Now let's assume that you have requested copies of your credit scores from a website like MyFICO, and it you've found that it is lower than average (and certainly lower than the ideal range of 720 or above). How do you go about increasing your score before buying a home?

Here are some things you can do:

Most importantly, make sure that you pay all of your bills on time (credit card bills, car payment, etc.). This will improve your score faster than any other single act. It's also wise to pay down your debt as much as possible, starting with those credit card balances. This will give you a more favorable debt-to-income ration. Lastly, be sure to avoid any new lines of credit or loans. You don't want any new forms off debt dragging you down when trying to buy a home.
So let's summarize what we have learned...

What credit score do you need in order to buy a home? That will depend on the lender. But most experts agree that a 720 or above is needed to get the best interest rate on your mortgage loan. You might get approved for a loan with a lower score than that, but you certainly won't get the best interest rate.

So the key is to (A) know what your score is in the first place, and (B) work hard to improve it before applying for a mortgage if it's low. These have always been important things for home buyers to do, but they are even more important today as a result of the tougher regulation of the lending industry.

Credit Score Needed for Buying a Home in 2008

Home Equity Lines of Credit - How Soon afterwards Buying a Home Can You Get a Home Equity Loan?

If you have a large amount of equity in your home, you should be able to get a home equity loan. Home equity loans are perfect when you need extra cash for home improvements, debt consolidation, and so forth. Few homeowners have large saving accounts for emergency. Thus, if an emergency occurs, they are strapped financially.

Home Equity Loan Information

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Before you can apply for a home equity loan, you must build equity in your home or property. The concept of home equity loans is very simple. As your home appreciates in value, and your mortgage loan amount decreases, your home gains equity. Most people choose to sell their homes in order to get their hands on the cash. With a home equity loan, you can gain access to your equity, while continuing to live in your home.

Home equity loans are not free money. These loans have to be repaid. The terms for a home equity loan vary. On average, lenders establish loan terms for five to ten years. If you borrow a small amount of money, you may be able to repay the loan quicker. Before getting a home equity loan, carefully review your finances. Can you afford a second mortgage? If not, avoid a home equity loan. Equity loans are secured by your home. If the lender does not receive payments for the loan, you may lose your home.

When Should You Get a Home Equity Loan?

Some homeowners choose to wait at least two years before obtaining a home equity loan. During this time, the home value will increase substantially, allowing access to a larger cash amount. Of course, there is no set rule on how long you should wait before obtaining a home equity loan. In fact, some lenders will offer you a mortgage and home equity loan combo financing. In this situation, the market value of the home must exceed the sale price.

Before getting a home equity loan, check the current market value of your home. You can obtain this information by getting your home appraised, or conducting a comparative analysis of homes in your surrounding area. If you live in an area where home values increase very quickly, you may get a home equity loan soon after purchasing your home.

Home Equity Lines of Credit - How Soon afterwards Buying a Home Can You Get a Home Equity Loan?

Buying a Home afterwards Foreclosure - Ways to Get Approved

Before attempting to buy a home after foreclosure, it is important to educate yourself on the necessary steps, and improve your odds of getting approved. Certain situations are extremely damaging to your credit report. These include bankruptcy, foreclosure, repossession, etc. Fortunately, you can rise from a bad credit situation. Here are a few tips to help you get approved for a mortgage after a foreclosure.

Negative Effects of a Home Foreclosure

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Aside from embarrassment and shame, having a home foreclosure will significantly decrease your credit score. Immediately following a foreclosure, it is difficult to obtain any type of credit, especially a home loan. Because many factors contribute to the inability to repay a mortgage loan, those who experience a foreclosure may be able to afford a new home loan.

For example, if foreclosure was due to loss of employment, once the previous homeowner finds work, they may be able to handle a new mortgage. The problem lies in getting approved. Lenders could careless about the circumstances surrounding bad credit. Their main concern is determining whether you are a good candidate for a loan. Thus, it is essential to improve credit before applying.

Maintain Regular Payments with Existing Creditors

The best approach for improving your credit score following a foreclosure is to keep up with regular payments to your other creditors. For example, if you have three credit cards, make an effort to pay the bills on time. If possible, payoff the credit card balances. This will increase your available credit, which is perfect for quickly boosting credit rating.

If you do not have a credit card, another tactic involves applying for a new line of credit. This might consist of an auto loan or secured credit card. Likewise, maintain on-time payments. Be aware that late payments or skipped payments will cause further damage to your credit rating.

Choose a High Risk Mortgage Lender

If applying for a mortgage after a foreclosure, many traditional lenders will not approve a loan request. For this matter, request quotes from several sub prime or high risk mortgage lenders. These lenders approve loans to people who have a difficult time securing financing.

Buying a Home afterwards Foreclosure - Ways to Get Approved