Can I Buy a House With a 698 Credit Score?

A credit score serves as a numerical representation of a borrower’s creditworthiness. Lenders use these scores to assess the level of risk associated with extending credit, including mortgages. This score helps determine the likelihood that a borrower will repay a loan as agreed.

Understanding a 698 Credit Score

A 698 credit score is considered in the “good” range within common credit scoring models like FICO or VantageScore. This score indicates a responsible history of managing credit obligations and is sufficient for various loan products.

Lenders categorize credit scores into different tiers to evaluate borrower risk. A 698 score is viewed as manageable risk, suggesting a borrower is likely to meet financial commitments. This standing can open doors to a range of mortgage options, though interest rates might not be the lowest available to those with excellent credit.

Mortgage Programs Accessible with a 698 Score

With a 698 credit score, several mortgage programs are accessible.

Conventional loans are a common option, requiring a minimum credit score around 620 to 640. A 698 score places a borrower favorably for these loans, which can offer down payments as low as 3%. Higher credit scores can lead to more competitive interest rates and potentially lower private mortgage insurance (PMI) costs if less than 20% is put down.

Federal Housing Administration (FHA) loans are another option, known for their more flexible credit requirements. Borrowers can qualify with a credit score as low as 580 for a 3.5% down payment, making a 698 score within the acceptable range for FHA financing. These loans include both an upfront mortgage insurance premium (MIP) and annual MIP, which are financed into the loan or paid monthly.

For eligible service members, veterans, and surviving spouses, VA loans offer benefits, including the possibility of no down payment. While the Department of Veterans Affairs does not set a minimum credit score, individual lenders look for scores in the 620 to 640 range, meaning a 698 score is strong for a VA loan. Most VA loans require a funding fee, though some borrowers are exempt.

USDA loans, designed for properties in eligible rural areas, can also be an option, allowing for no down payment. While specific credit score guidelines can vary by lender, a score around 640 is sought. A 698 credit score meets these criteria, provided the borrower adheres to the program’s income limits and the property is located in a qualifying rural area.

Other Key Factors for Lender Approval

While a credit score is an important component, lenders consider several other factors when evaluating a mortgage application.

The debt-to-income (DTI) ratio is a key metric, representing the percentage of a borrower’s gross monthly income that goes towards debt payments. Lenders prefer DTI ratios to be below a certain threshold, ranging from 43% to 50%, though specific limits can depend on the loan program. A lower DTI indicates a greater capacity to manage additional mortgage payments.

Lenders assess the stability of a borrower’s income and employment history. They look for at least two years of consistent employment and income to ensure a reliable source of funds for mortgage repayment. This review involves examining pay stubs, W-2 forms, and sometimes tax returns.

The amount of the down payment plays a role in lender approval. A larger down payment reduces the loan amount, which lowers the lender’s risk and can result in more favorable loan terms. The down payment directly impacts the borrower’s initial equity in the home.

Available cash reserves provide an additional layer of security for lenders. These are funds remaining after the down payment and closing costs have been covered. Lenders prefer to see reserves equivalent to several months of mortgage payments, as this financial cushion helps cover unexpected expenses or temporary income disruptions.

Steps Before Applying for a Mortgage

Before formally applying for a mortgage, a potential homebuyer should take several preparatory steps to ensure a smoother process.

Obtaining copies of credit reports from all three major credit bureaus—Equifax, Experian, and TransUnion—is an important first step. This allows for a thorough review of credit history and the opportunity to dispute any inaccuracies, which could affect the credit score.

Gathering necessary financial documents in advance can streamline the application process. This includes recent pay stubs, W-2 forms from the past two years, and bank statements for the last two to three months. Having these documents available demonstrates preparedness and helps lenders verify income and assets efficiently.

Understanding the budget for both the down payment and closing costs is an important preparatory measure. Down payment requirements can vary widely, from as low as 3% for certain loan types to 20% or more. Closing costs, which cover various fees associated with the loan and property transfer, range from 2% to 5% of the loan amount. Preparing for these upfront expenses helps avoid financial surprises.