For consumers looking at obtaining an FHA loan, the most important factor to note is that FHA underwriting guidelines do not dictate a minimum credit score a consumer must have in order to obtain an approval. The difference, however, will be in the score a consumer has in reference to receiving an automatic approval, or one that is manually underwritten. An automatic approval can take a matter of days and requires a credit score of at least 620. All consumers falling below the 620 credit score mark are required to provide additional documentation and will be placed in a manual underwriting queue for approval, which can take as long as 30 days. It is equally important to note that even with additional documentation for low credit scores, there is no guarantee a loan approval will be forthcoming.
Similarly to FHA loans, VA loans do not require a minimum credit score. However, only eligible veterans may apply for a VA loan, and the guidelines state that if a consumer's score is under a 620, they will be referred to a manually underwriting process pending additional documentation to supplement a loan file. Just as with an FHA loan, there is no guarantee for approval on manually underwritten files if the credit report does not justify creditworthiness and an ability to repay. This is determined independently by a VA underwriter.
Due to conventional loans having a higher risk of default and no government backing against a bank's loss in the event of default like an FHA or VA loan, the minimum credit score a consumer must have to apply for a conventional loan is 680. However, consumers who have an above 680 credit score can be offered better loan terms and interest rates as the score improves.
For consumers who have lower credit scores, home ownership is still possible. If the consumer can show he has been financially responsible for at least 2 years using his current credit report or nontraditional sources of credit, many underwriters will extend the offer of a home loan. Nontraditional sources of credit are considered rental history payments and utility bill payments.
For consumers who can not prove a sufficient 2-year repayment history, there are other resources that can be used to put them on the path to home ownership sooner than later. Many mortgage companies offer credit rehabilitation services, helping consumers enact a plan to improve their credit using specific strategies for paying off current debts, settling accounts and opening up new trade lines to improve credit. In many cases, consumers who follow a plan for credit improvement can be in a position to purchase a home within 6 months.
Regardless of a consumer's credit score, no seller will turn away a cash purchase. When purchasing a home using cash as a resource, your credit score will not come into play in any way. The only requirement for a cash purchase is the ability to prove the funds available for the home purchase.
If you are worried about the state of your credit history when purchasing a home, contact a Realtor or mortgage loan officer and ask her about the possibility of owning a home. There is no substitute for expert advice and insight. Many times, professionals in the industry will have access to information you might not be aware of in resources available to you to make the dream of home ownership a reality.