A credit score of 704 is considered good by most lenders. This means you have a good chance of qualifying for a mortgage with a competitive interest rate. However, there are a few key factors to keep in mind when trying to buy a home with a 704 credit score.
What is a good credit score for buying a house?
In general, a credit score of 740 or higher is considered excellent for mortgage lending purposes. Borrowers with scores in this range often qualify for the best interest rates. A score between 680-739 is still considered good and will qualify for most mortgages, though possibly not at the lowest rates.
A score of 704 falls within the good credit range. Most lenders view borrowers with scores in the low 700s as qualified applicants who are likely to repay their mortgage. However, with a score on the lower end of good, you may not get the rock bottom interest rates offered to those with excellent credit.
What mortgage rates can I expect with a 704 credit score?
As of November 2023, here are some average 30-year fixed mortgage rates for borrowers with a 704 credit score:
- 6.875% for a conventional loan
- 6.25% for a conforming loan backed by Fannie Mae or Freddie Mac
- 5.5-6.5% for an FHA loan
- 6.375% for a VA loan
These rates can fluctuate daily based on market conditions. They may be slightly higher or lower when you actually apply for a mortgage. With a higher credit score of 740+, you could potentially qualify for rates that are about 0.25% lower.
The pros of a 704 credit score:
Here are some benefits of having a credit score near 704 when applying for a mortgage:
- Credit is considered good, opening up financing options
- Interest rates are competitive
- You’ll likely qualify for most mortgage programs
- Adds financial credibility to your loan application
- Increases chances of approval and better loan terms
The cons of a 704 credit score:
Here are some potential drawbacks of having a 704 credit score:
- Interest rates may be slightly higher than if score was over 740
- You may not qualify for the lowest advertised rates
- Lenders will scrutinize your credit report more carefully
- You’ll likely need a higher down payment than borrowers with excellent credit
- Any negatives on your credit report will stand out
What credit score do most lenders require?
Here are general mortgage credit score requirements from major lenders:
- FHA loans: 500 minimum credit score required
- VA loans: 620 minimum credit score required
- USDA loans: 640 minimum credit score required
- Conventional loans: 620 minimum credit score required, though scores of at least 680 qualify for better rates
- Jumbo loans: 700 minimum credit score required
With a score of 704, you meet the minimum credit score requirements for any type of mortgage program. Your strong credit opens up your financing options. Most lenders would readily approve a borrower with a 704 credit score, as long as their overall financial profile looks healthy.
How much house can I afford with a 704 credit score?
The amount of home you can afford depends on several factors, including:
- Your gross income
- Non-housing debt obligations like car loans
- Down payment amount
- Other financial assets
- Mortgage rates, which vary by credit score
Lenders generally recommend that your total debt, including the mortgage payment, not exceed 36% of your gross monthly income. They also want to see a down payment of at least 3.5-20% of the purchase price, depending on the loan program.
For example, let’s assume you have a gross annual income of $60,000, a monthly car payment of $200, a 20% down payment saved up, strong assets, and qualify for a 6.875% interest rate. Here’s how much house you may be able to afford:
- Gross monthly income: $5,000
- Maximum monthly debt (36% of income): $1,800
- Subtract monthly car payment: $200
- Maximum monthly mortgage payment: $1,600
- With 20% down at 6.875% rate, purchase price: $315,000
This example illustrates how a 704 credit score may allow you to qualify for $315,000 mortgage with strong finances otherwise. Use an online mortgage calculator to estimate your personalized home affordability.
Tips for improving your chances
A credit score of 704 meets most lenders’ requirements. But you can take steps to strengthen your mortgage application and improve your rate:
- Pay all bills on time going forward to maintain good credit
- Pay down balances below 30% of the credit limit on cards
- Limit new credit inquiries by only applying for necessary accounts
- Build up your down payment and cash reserves
- Provide strong proof of income by having current pay stubs, tax returns, and W-2s
- Keep other recurring debt obligations low
- Get pre-approved to show you’re a serious buyer
Taking these steps can help boost your mortgage chances in addition to your already decent 704 credit score.
Alternatives with a lower score
If your score is below 704, all hope is not lost. Here are some options to still buy a home with fair or average credit:
- FHA loan: Minimum 500 credit score required. Offers low down payment options.
- VA loan: Minimum credit score requirement is 620. No down payment needed for qualified veterans.
- USDA loan: Can qualify with a 640 credit score. Primarily for rural properties.
- Subprime mortgage lender: Specializes in borrowers with credit challenges. Higher rates.
- Fannie Mae HomeReady: Conventional loan with a 620 score minimum, income flexibility.
- Community lender programs: State and local groups provide options for lower scores.
- FHA 203(k) rehab loan: Finance home repairs to make the property livable.
While it will be more challenging, there are home financing possibilities open to you even if your credit score isn’t 704. Speak to a mortgage broker or housing counselor to learn about alternatives that may work for your situation.
Pre-approval timeline with 704 credit
Here is a general timeline of what to expect going through the pre-approval process with a 704 credit score:
- Day 1: Submit loan application with income docs, credit report, and assets verified.
- Day 3: Receive initial pre-approval letter from lender.
- Day 7: Provide any additional documents requested by lender.
- Day 14: Mortgage loan underwriter reviews full application.
- Day 16: Loan officer contacts you with final pre-approval decision.
- Day 18: Obtain final, official pre-approval letter. Start home search!
This shows how most lenders can pre-approve borrowers with good credit in about 2-3 weeks. The process may move faster or slower depending on your unique financial profile.
Preparing for mortgage application
To make your 704 credit score work for you, pull together these items for your mortgage application:
- Last two years’ W-2s and tax returns
- Current pay stubs covering one month
- Last two months’ bank statements
- Investment account statements
- Driver’s license or other ID
- Debt-to-income worksheets
- Earnest money deposit for sales contract
- Gift letters for any gifted down payment funds
- Divorce decree or separation agreement, if applicable
Having these items ready to submit can help streamline the application process. You want everything in order to show lenders you’re financially prepared, despite your 704 score not being tip-top.
Next steps after pre-approval
Once pre-approved, you can start seriously looking for homes within your approved price range. Here are steps to take after getting pre-approved with a 704 credit score:
- Interview real estate agents and choose one to represent you.
- Start touring available listings that fit your criteria.
- Submit purchase offers on desired homes.
- Negotiate any needed repairs after inspection.
- Coordinate with lender on financing as offer is accepted.
- Pay for appraisal and finalize loan details.
- Review closing documents and prepare for closing day.
Having a pre-approval letter in hand, even with a 704 score, makes your offers stronger. It shows sellers you’re qualified to purchase on their timeline. Stay engaged with your lender throughout the buying process to ensure clear sailing at closing.
The impact of raising your credit score
While a 704 credit score gives you solid home financing options, raising your score further could improve your mortgage terms. Here’s the potential impact if you boosted your credit into the excellent range:
- Interest rate decrease of up to 0.25%
- Savings of $30+ per month on a $300,000 mortgage
- Potentially no need for private mortgage insurance (PMI)
- Higher loan-to-value ratios allowed
- More negotiating leverage for your offer
- Expanded choice of loan programs
- Improved ability to refinance later
Take steps like paying down balances, disputing errors on your report, or establishing new positive credit if you’re aiming to give your score a boost before applying for a mortgage.
Conclusion
A credit score of 704 is considered good for mortgage financing. Borrowers can generally qualify for competitive interest rates and affordable monthly payments. While not excellent credit, responsible buyers can still lock in favorable home loans with scores in the low 700s. Pay all bills on time, minimize debts, and put down a sizable down payment to make your 704 credit score work to your advantage.
