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What Credit Score do I need to Buy a House? Debt-to-Income Ratio?

Home Buyers  \  August 8, 2014 10:00 am

What Credit Score do I need to Buy a House? Debt-to-Income Ratio?

A very typical question that usually comes up in the pre-home owner stage is “What does my credit score need to be?” and “Debt-to-income ratio? How do I figure that?”. In fact every home-owner has faced these questions in the home-buying process. Your credit score is indeed an important factor in securing a mortgage loan for a new house, but it’s not the only factor.

Often times the individuals gross income and current debt payments are the most heavily weighted qualifiers. Debt payment, meaning the perspective home buyers debt-to-income ratio. If you have a perfect credit score, but more debt than income, the odds of a lender being able to offer you a loan are slim. Don’t be discouraged through there are always different options available. Below we will go over some of the basics for getting approved by a mortgage lender.

What should my credit score be to buy a house?
Various lenders has different credit score requirements but generally for a conventional loan not backed by the government (like and FHA or VA government backed loans ) the necessary credit score by a house is around 660 or above. The other number that is very equally important is your debt to income ratio.

What is debt-to-income?
Debt-to-income-ratioDebt to income ratio is another very important factor in getting approved for a loan. Lenders look at this number to determine whether or not they can provide you with a loan based on how much money you have compared to the amount of debt you have.

Some lenders look at this number with even higher regard than your actual credit score. This is mainly because the mortgage lender has to be able to show that you will be able to pay your bills and your new home loan without any issue.

The debt-to-income ratio is how much of your gross income goes to pay all your debt obligations. For this equation, debt obligations refer to things like your mortgage loan including principal, interest, taxes and homeowners insurance, your car loans, student loans, alimony or child support, and if applicable, any condo fees. Basically any bills that you pay that are recurring and not a short-term debt (debt that you pay off in less than a year) are used here as your “debt”.

How to figure your debt-to-income ratio?
Once you have your debt amount figured, divide your debt by your income amount. This will give you the debt to income percentage. The recommended number for this is 40 and under. 

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