Can I Buy a House With a 674 Credit Score?

Buying a home is a significant financial undertaking. If you possess a 674 credit score, you might wonder about securing a mortgage. While this score is a strong indicator of financial responsibility, it is not the sole determinant for loan approval. Lenders assess a comprehensive financial picture to evaluate eligibility.

Understanding Your Credit Score’s Role

A 674 credit score typically falls within the “Good” range (670-739) for models like FICO. This score places you comfortably above the minimum requirements for many loan products. Lenders utilize credit scores to gauge your likelihood of repaying borrowed funds. While a 674 score is not in the top-tier categories, it generally indicates you are a lower-risk borrower with a history of paying bills on time. However, borrowers with scores in this range might not qualify for the lowest interest rates or most favorable loan terms.

Mortgage Options for Your Credit Score

Your 674 credit score puts you in a solid position to secure a home loan, as it typically meets or exceeds the minimum requirements for several major mortgage types. Conventional loans generally require a minimum credit score of 620. With a 674 score, you have a high probability of approval for a conventional mortgage, though the best interest rates are often reserved for scores of 740 or higher. Government-backed loans, such as FHA, VA, and USDA loans, offer more flexible credit requirements. FHA loans allow for a minimum credit score of 580 for a 3.5% down payment, or 500 with a 10% down payment. VA loans, available to eligible service members and veterans, typically require at least a 620. USDA loans, designed for rural properties, often prefer a score of at least 640 for automated underwriting system approval. For scores below 640, manual underwriting may be required, which involves a more detailed review of financial factors. Your 674 score comfortably surpasses these minimums, providing access to a variety of financing options.

Key Financial Factors Beyond Credit

While your credit score is important, lenders consider a comprehensive financial picture for mortgage eligibility. Your debt-to-income (DTI) ratio, the percentage of gross monthly income allocated to debt, is a crucial factor. Most lenders prefer a DTI of 36% or lower, though some may approve loans with a DTI as high as 45% to 50%, particularly for FHA loans. A lower DTI generally increases your chances of approval and can lead to more favorable interest rates. Lenders also scrutinize income stability and employment history, typically looking for at least two years of consistent employment. Consistent income from verifiable sources demonstrates your ability to meet long-term financial commitments. Additionally, your down payment size and cash reserves are considered. A larger down payment can reduce the loan amount, and cash reserves signal financial prudence.

Preparing for Your Mortgage Application

Before formally applying for a mortgage, gathering all necessary documentation is an important preparatory step. Lenders typically require proof of income, which includes pay stubs from the most recent two months and W-2 forms for the last two years. If you are self-employed, tax returns for the past two years and current profit and loss statements will be needed. Additionally, recent bank statements for checking and savings accounts, usually covering two to three months, are required to verify assets and funds for a down payment and closing costs. Understanding the mortgage pre-approval process is also beneficial. Pre-approval involves a preliminary assessment by a lender of your financial situation, providing an estimate of how much you may be able to borrow. This step requires providing similar documentation as a full application and helps you understand your budget before seriously house hunting. Reviewing your full credit report is also advisable to ensure accuracy and identify any discrepancies that might impact your application.

Navigating the Mortgage Application Process

Once you have prepared your financial documents and are pre-approved, the formal mortgage application process begins with submitting your complete package to a chosen lender. After submission, your application enters the underwriting phase, a detailed review conducted by the lender to assess the risk involved. During underwriting, the lender verifies your income, assets, debt, and credit history, and may request additional information or clarification on specific items. An appraisal of the property is also conducted by a certified appraiser to determine its market value, ensuring it supports the loan amount. Following the underwriter’s approval, you will receive a loan commitment. The final stage is closing, where all parties sign the necessary legal documents, funds are transferred, and ownership of the property is officially conveyed.