Types of Home Loans With Basic Credit Requirement

Types of Home Loans With Basic Credit Requirements

There are several types of new home loans available in Tennessee, each with its own set of credit requirements. In this article, we will explore the most common types of home loans in Tennessee and the credit scores needed to qualify for them.

Conventional Loans

Conventional loans are mortgages not guaranteed by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These loans are available through private lenders such as banks and credit unions.

Credit Requirements: To qualify for a conventional loan, you typically need a credit score of 620 or higher. However, to get the best interest rates, you may need a score of 740 or higher. Additionally, you should have a debt-to-income ratio (DTI) of 43% or lower.

FHA Loans

FHA loans are backed by the Federal Housing Administration and designed to help low-to-moderate-income borrowers qualify for a mortgage. These loans are available through approved lenders, and the FHA insures the loan.

Credit Requirements: To qualify for an FHA loan, you typically need a credit score of 580 or higher. However, borrowers with scores between 500 and 579 may still qualify with a higher down payment. Additionally, you should have a DTI of 43% or lower.

VA Loans

VA loans are backed by the Department of Veterans Affairs and available to active-duty service members, veterans, and eligible surviving spouses. These loans are available through approved lenders, and the VA guarantees the loan.

Credit Requirements: There is no minimum credit score requirement for a VA loan. However, lenders typically look for a score of 620 or higher. Additionally, you should have a DTI of 41% or lower.

USDA Loans

USDA loans are backed by the United States Department of Agriculture and designed to help borrowers in rural areas. These loans are available through approved lenders, and the USDA guarantees the loan.

Credit Requirements: To qualify for a USDA loan, you typically need a credit score of 640 or higher. Additionally, you should have a DTI of 41% or lower.

Jumbo Loans

Jumbo loans are mortgages that exceed the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. In Tennessee, the FHFA conforming loan limit for 2021 was $548,250.

Credit Requirements: To qualify for a jumbo loan, you typically need a credit score of 700 or higher. Additionally, you should have a DTI of 43% or lower.

In addition to these five types of loans, there are other specialized loan programs available in Tennessee, such as renovation loans and energy-efficient mortgages. It's always a good idea to discuss your options with a lender to determine which loan is best for your financial situation. Overall, the credit score requirements for a new home loan in Tennessee vary depending on the type of loan. To increase your chances of qualifying for a home loan, it's a good idea to maintain a good credit score, keep your debt-to-income ratio low, and save up for a down payment.