Buying a house is a significant milestone for many individuals and families‚ often representing a substantial financial commitment․ One of the most critical factors influencing a potential homebuyer’s ability to secure a mortgage is their credit score․ In this article‚ we will explore whether a credit score of 686 is sufficient to purchase a house‚ taking into consideration various aspects of credit scores‚ mortgage options‚ and additional factors that can affect home buying․
Credit scores are numerical representations of a person's creditworthiness‚ calculated based on their credit history․ The most commonly used credit scoring models are FICO and VantageScore‚ both of which range from 300 to 850․ Higher scores indicate better creditworthiness‚ which typically results in more favorable lending terms․
A credit score of 686 falls within the 'Good' range‚ indicating a relatively healthy credit history․ However‚ the question remains: is this score sufficient for buying a house?
When considering home loans‚ lenders typically evaluate credit scores along with other factors such as income‚ debt-to-income ratio‚ and employment history․ Here are some mortgage options available to individuals with a credit score of 686:
Conventional loans are not backed by the government‚ and they often require a minimum credit score of 620․ With a score of 686‚ borrowers should have access to conventional loans‚ although interest rates may vary based on other financial factors․ A higher down payment can help offset a lower credit score in terms of lender risk․
The Federal Housing Administration (FHA) insures loans made to borrowers with lower credit scores․ While the minimum credit score for an FHA loan is typically 580 for a 3․5% down payment‚ those with scores between 500 and 579 may still qualify with a 10% down payment․ Therefore‚ a score of 686 makes FHA loans a viable option․
Veterans Affairs (VA) loans are designed for veterans and active military personnel․ These loans do not have a minimum credit score requirement‚ but most lenders prefer a score of at least 620․ With a score of 686‚ eligible borrowers can benefit from favorable loan terms without the need for a down payment․
The United States Department of Agriculture (USDA) offers loans to low-to-moderate-income borrowers in rural areas․ While there is no official minimum credit score‚ many lenders expect a score of at least 640․ A score of 686 comfortably meets this expectation‚ making USDA loans a possibility for those who qualify․
While a credit score is crucial in the mortgage approval process‚ it is not the only factor lenders consider․ Here are some additional elements that can influence the decision:
The debt-to-income ratio measures an individual's total monthly debt payments against their gross monthly income․ Lenders typically prefer a DTI ratio of 43% or lower․ A lower DTI indicates that a borrower can manage their debt more effectively‚ which can enhance chances of mortgage approval․
The size of the down payment can significantly impact mortgage approval and terms․ A larger down payment can mitigate some risks associated with a lower credit score․ Generally‚ a down payment of 20% or more can help borrowers avoid private mortgage insurance (PMI)‚ lowering monthly payments․
Lenders prefer borrowers with stable employment histories․ Consistent employment in the same field or with the same employer can demonstrate financial stability‚ which can positively influence mortgage applications․
Having savings or assets can provide lenders with confidence in a borrower’s ability to make mortgage payments‚ particularly if unexpected financial challenges arise․ Reserves are typically calculated as the number of months that mortgage payments can be covered by liquid assets․
If you find yourself with a credit score of 686 and are concerned about securing the most favorable mortgage terms‚ there are steps you can take to improve your credit score:
Timely payment of bills is one of the most significant factors affecting credit scores․ Setting up automatic payments or reminders can help ensure that you never miss a due date․
Lowering outstanding debts can improve your credit utilization ratio‚ which is the percentage of available credit currently being used․ Aim to keep credit utilization below 30% for optimal score improvement․
Regularly reviewing your credit report for inaccuracies can help maintain or improve your score․ If you find any errors‚ dispute them with the credit bureau to have them corrected․
Each time you apply for new credit‚ a hard inquiry is initiated‚ which can temporarily lower your score․ Avoid opening new accounts before applying for a mortgage to keep your score stable․
A credit score of 686 is generally considered good and can provide access to various mortgage options․ While it may not be the highest score available‚ it should suffice for securing a mortgage‚ especially when combined with favorable financial factors such as a low debt-to-income ratio‚ a substantial down payment‚ and stable employment․ For those looking to improve their score‚ implementing positive financial habits can lead to better mortgage terms in the future․ Ultimately‚ being informed about the mortgage process and taking proactive steps can empower potential homebuyers to navigate their journey to home ownership successfully․