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The coronavirus pandemic threw a wrench into just about everyone’s plans. Vacations were canceled, lesson plans were turned upside down and millions of Americans were suddenly out of a job.

If you were planning to buy a house in the near future, you might be questioning whether you should put that idea on pause, too.

Mortgage Rates Are At All-Time Lows

The Federal Reserve cut its federal funds interest rate in early March by 0.5 percentage points to a range of 1% to 1.25% in response to the pandemic’s effect on our economy. Two weeks later, it made another emergency rate cut of 1 percentage point to a range of 0% to 0.25% ― the lowest level since the Great Recession.

Though the Fed’s target rate doesn’t have a direct effect on mortgage interest rates, there is a connection between the two, and mortgage rates dropped accordingly. Mortgage rates fell to all-time lows in April, and the average rate on a 30-year fixed-rate mortgage now hovers around 3.4%.

Andrea Woroch, who advises consumers on how to save money, said she refinanced her current mortgage just a few weeks ago. She was able to shave more than 1% off her interest rate, which means she will save more than $100,000 over the life of the loan.

Should You Buy A House During A Pandemic?

Rock-bottom rates make homebuying an attractive option, but there are still many unknowns and challenges when it comes to assessing how the pandemic will affect the market and consumers’ financial lives.

As of April, more than 30 million Americans had filed for unemployment. Some states have begun to reopen businesses slowly, but there’s no telling what kind of ripple effect the shutdown will have on employment for months to come.

Buying a home when your job stability is uncertain is a risky prospect. The next year might present once-in-a-lifetime opportunities to buy, but that doesn’t mean you should go for it if you aren’t prepared.

There is no universal credit score for a mortgage, says Mat Ishbia, CEO and president of United Wholesale Mortgage. The minimum credit score for a mortgage will depend on the type of loan – conventional or government-backed – and the lender.

Unlike a conventional loan, a government-backed loan is insured by the federal government, which protects the lender if you default on your home loan. This guarantee makes qualifying for a government-backed loan easier than a conventional loan.

“While lenders differ, most require a 620 score, and 580 seems to be the floor for most situations,” Ishbia says.

You can buy a home with a FICO score of about 600, but you will be limited to mortgage programs for lower credit scores. Choices might include a Federal Housing Administration loan that requires a score of either 580 or 500, depending on your down payment, and Department of Veterans Affairs or U.S. Department of Agriculture loans, which set no firm minimum.

Whether you opt for a conventional or government-backed mortgage, you can expect stricter minimum credit score requirements as lenders respond to economic uncertainty caused by the pandemic. If your credit doesn’t meet the minimum requirements, you may be asked to make a larger down payment.

Income verification is also more intense for borrowers.

If you’re in the market for a mortgage, this table shows the minimum credit score required for FHA, VA, USDA and conventional loans.

Why Do Credit Scores Matter for Home Loans?

There’s a simple reason that lenders evaluate your credit history, including your credit score, when you’re trying to buy a home.

“Credit scores are an indication of risk,” Ishbia says. “In the eyes of most lenders, a lower score means higher risk.”

It won’t be a roadblock to approval, but it often means paying more than if you had good credit.

Brunker says, “Generally, lenders view a credit score as a leading indicator of the borrower’s likelihood to repay the loan, and as a result, will ask a borrower with a lower credit score to pay a higher rate, all else being equal.”

Even a small difference in your interest rate can add up to thousands of dollars over time. A 30-year $250,000 loan at 4% interest results in paying $179,674 in total interest; a quarter of a percentage point more costs an extra $13,072 in total interest.

The higher interest rate translates to a higher monthly payment as well: You’d pay $1,194 at 4% and $1,230 at 4.25%.

Unless you’re fabulously wealthy, it’s unlikely that you’ll be able to simply decide, “I think I’ll buy a house now” and breeze through the process in a few weeks.

You’re probably wondering about loan preapproval, house hunting and real estate agents, but the process of preparing to buy a home actually starts months or even years before you start looking at mortgage rates.

You need to be financially ready. This means looking at your current financial situation and seeing how it lines up with what mortgage lenders look for in a borrower, figuring out what you can afford and saving for a down payment and closing costs.

What Lenders Are Looking For

Here are some of the basic requirements you’ll likely need to fulfill to be approved for a mortgage. Keep in mind, these are general guidelines and may vary depending on your lender and what type of loan you get:

• Minimum credit score of 620 for conventional loans; 580 for FHA loans
• Good credit history
• Proof of reliable source of income
• Debt-to-income ratio below 50%

If you meet only the minimum requirements, you may want to work on improving your credit score before applying for a mortgage, as this can get you access to better rates.

Determining How Much You Can Afford

You’ll have to get preapproved for a mortgage to know exactly how much you’ll be able to spend on a home, but figuring out what your monthly budget might be if you take on a mortgage will help you decide if you can realistically afford a home.

There are many home-affordability calculators that estimate how much home you can afford and what your monthly payments might be. You may find that you’re able to get a mortgage with a lower monthly payment than what you’re currently paying towards rent. However, keep in mind that homeownership comes with all kinds of new costs, so factor in things like taxes, insurance and maintenance when looking at what your overall costs would be.

Saving For A Down Payment

Saving for your down payment can take a while, especially if you plan to put 20% down.

Luckily, there are plenty of options for those who can’t pull together that kind of cash. FHA loans require only 3.5% down, and there are conventional-loan options that allow you to go as low as 3% down – with the caveat that mortgage insurance will be included. If you qualify for a VA or USDA loan, you could get a home with 0% down.

The reason 20% is the oft-quoted number is because that’s the minimum you can put down while avoiding mortgage insurance. On top of that, the larger down payment you make, the lower your monthly payments will be.

When you’re figuring out how much you need to save, don’t forget to factor in closing costs. Your individual closing costs will vary depending on your situation, but usually end up being around 2% – 5% of the home’s value.

You’ll need to provide two months of bank statements to prove you’ve had your down payment funds in an account for at least 60 days for them to be eligible for you to use. Lenders require this documentation to ensure that you aren’t taking out another loan to cover your down payment.