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What Credit Score is Needed to Buy a HUD Home?
HUD’s Federal Housing Administration (FHA) provides the opportunity for millions of Americans to purchase a home. They provide options such as selling HUD-owned homes with affordable down payment options and government-backed loans.
To buy a HUD home, buyers need a minimum credit score of 580 to be eligible for maximum FHA financing. Buyers can qualify with credit scores between 500 and 579, but they need at least a 10% down payment. Credit scores under 500 are not eligible for FHA financing.
This article will discuss the topic of credit scores and homeownership in more detail.
How to Understand Your Credit Score
The first step toward HUD homeownership is to understand your credit score. You should go to the official free annual credit report website to pull a copy of your report from all three reporting agencies.
While these reports won’t give you a copy of your actual score for free, they will show you where you have opportunities to improve your score.
Government-Backed Mortgage Loans
Even though HUD and FHA provide government-backed loans, they still have minimum requirements for credit scores. Whether you go with an FHA, VA, or USDA loan, there will be qualifying criteria for you to meet.
FHA Loans & Credit Score
FHA mortgage loans are among the most popular financing options for first-time homebuyers or those with less-than-perfect credit scores. These loans are backed by HUD and issued through an approved lender.
Unlike some other lenders, which may require larger down payments, FHA loans only require 3.5% down. However, only borrowers with credit scores of 580 or higher will qualify for the reduced down payment.
Lower credit scores may require up to 10% down payment to qualify due to the 90% LTV limit for borrowers with credit scores of 579 or below.
VA loans are prevalent and offer excellent terms for those who qualify. If you or your spouse are current or former service members, you should look into this option. These loans are provided through private lenders and require no down payment.
VA loans do not have a minimum credit score requirement. Still, the lender will look at your entire financial profile to get an idea of your creditworthiness. However, you should increase your credit score to at least the 580 thresholds to have the best chances of approval and the best terms.
These loans are backed by the USDA and are only available for properties in certain areas and for borrowers within certain income limits. Like the VA loans, there is no “official” minimum credit score. Still, borrowers with a minimum score of 580 have the greatest chance of success.
HUD and FHA offer great programs to help Americans achieve homeownership, even with less-than-perfect credit ratings. However, to qualify for these programs and get the best terms, you should have a minimum score of 580. A lower score doesn’t mean that your dream can’t become a reality, but you may have to plan for a higher down payment and less desirable terms to get approval.
Check out HUD’s website to see all of the programs that are available for your state.