Is a 645 Credit Score Good Enough to Buy a House?
Unsure if your 645 credit score is enough for a home? Learn about mortgage possibilities, financial considerations, and qualification requirements.
A credit score represents an individual’s creditworthiness, summarizing their financial history. Lenders use this number to assess risk when extending credit. While a significant element, it’s one of several factors lenders evaluate for home loan eligibility. Understanding its influence is important for homebuyers.
Understanding a 645 Credit Score for Home Buying
A 645 credit score falls within the “fair” category (580-669) across major scoring models. While below the national average, it doesn’t prevent homeownership. Lenders may see it as moderate risk, but it can be sufficient for certain mortgage products.
This score suggests a credit history with some past issues, yet a foundation for improvement. Though it may not unlock the most favorable terms, it’s a starting point for many homebuyers. Securing a mortgage depends on the loan program and lender requirements.
Mortgage Options with a 645 Credit Score
Several mortgage options are available for individuals with a 645 credit score, including government-backed and conventional loans.
FHA loans are often accessible with lower credit scores, typically requiring a minimum FICO score of 580 for a 3.5% down payment, though many lenders prefer scores of at least 620.
VA loans, for eligible service members and veterans, have no VA-set minimum score; private lenders often require 620 or higher.
USDA loans for rural properties also lack a universal minimum, with many lenders preferring 640 or higher for automatic approval.
Conventional loans typically require a minimum of 620. While a 645 score meets this, it’s on the lower end, meaning some conventional lenders may have stricter criteria or offer less competitive terms.
How a 645 Score Impacts Loan Terms
A 645 credit score influences mortgage terms, especially interest rates and mortgage insurance. Borrowers with “fair” scores generally face higher interest rates, compensating lenders for increased risk. Even a slightly higher rate can significantly increase total costs over the loan’s life.
Mortgage insurance is key. FHA loans require a 1.75% upfront premium (UFMIP), typically financed, and annual MIP, usually paid monthly, which may be required for the entire term if the down payment is less than 10%.
Conventional loans with less than 20% down require annual private mortgage insurance (PMI), with higher costs for lower credit scores.
Other Key Factors Lenders Consider
Beyond the credit score, lenders assess other factors for mortgage eligibility and terms. The debt-to-income (DTI) ratio, comparing monthly debt to gross income, is significant. While below 36% is preferred, some lenders approve DTI ratios up to 43-50%.
A lower DTI suggests greater debt management capacity, improving approval chances and rates. Lenders also scrutinize employment history for stability, preferring two years of steady employment. Consistent, verifiable income is crucial, impacting the maximum loan amount.
Savings for a down payment and closing costs also play a role. A larger down payment reduces the loan-to-value (LTV) ratio, potentially leading to better loan terms and offsetting a less-than-perfect credit score.
Steps to Improve Your Credit Score
Improving a credit score involves consistent financial habits. Make all bill payments on time, as payment history is a substantial factor; automatic payments help avoid late fees. Reducing revolving debt, like credit cards, significantly boosts scores; maintain credit utilization below 30%. Regularly check credit reports for errors, as inaccuracies can lower scores. Avoid new credit applications, such as new cards or personal loans, especially before a mortgage application, as hard inquiries can temporarily reduce your score.