What’s your number? That’s not a pickup line; it’s the digits a mortgage lender will want to know. In the range of 300 to 850, a score as low as 500 may open the door to a home.
But the credit score needed to buy a house is at least 620 for most types of mortgage loans. The lowest rates usually go to borrowers with scores of 740 and above whose finances are in good order.
Why Does a Credit Score Matter?
Just as you need a résumé listing your work history to interview for a job, lenders want to see your borrowing history, through credit reports, and a snapshot of it, expressed as a score on the credit rating scale, to help predict your ability to repay a debt.
A great credit score vs. a bad credit score can translate to money in your pocket: Even a small reduction in interest rate can save a borrower thousands of dollars over time.
Do I Have One Credit Score?
You have many different credit scores based on information collected by Experian, Transunion, and Equifax, the three main credit bureaus, and calculated using scoring models usually designed by FICO® or a competitor, VantageScore®.
To complicate things, there are often multiple versions of each scoring model available from its developer at any given time, but most credit scores fall within the 300 to 850 range.
Mortgage lenders predominantly consider FICO scores. Here are the categories:
• Exceptional: 800-850
• Very good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579
Here’s how FICO weighs the information:
• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Credit mix: 10%
Mortgage lenders will pull an applicant’s credit score from all three credit bureaus. If the scores differ, they will use the middle number when making a decision.
If you’re buying a home with a non-spouse or a marriage partner, each borrower’s credit scores will be pulled. The lender will home in on the middle score for both and use the lower of the final two scores (except for a Fannie Mae loan, when a lender will average the middle credit scores of the applicants).
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A Look at the Numbers
What credit score do you need to buy a house? If you are trying to acquire a conventional mortgage loan, a loan not insured by a government agency, you’ll likely need a credit score of at least 620.
With an FHA loan, 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.
Lenders like to see a minimum credit score of 620 for a VA loan.
A score of at least 640 is usually required for a USDA loan.
A first-time homebuyer with good credit will likely qualify for an FHA loan, but a conventional mortgage will probably save them money over time. One reason is that an FHA loan requires upfront and ongoing mortgage insurance that lasts for the life of the loan if the down payment is less than 10%.
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Credit Scores Are Just Part of the Pie
Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, and bank accounts.
A lender facing someone with a lower credit score may increase expectations in other areas like down payment size or income requirements.
Other typical conventional loan requirements a lender will consider include:
Your down payment. Putting 20% down is desirable since it often means you can avoid paying PMI, private mortgage insurance that covers the lender in case of loan default.
Debt-to-income ratio. Your debt-to-income ratio is a percentage that compares your ongoing monthly debts to your monthly gross income.
Most lenders require a DTI of 43% or lower to qualify for a conforming loan.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
How to Increase Your Credit Scores Before Buying a House
Working to improve or build credit over time before applying for a home loan could save a borrower a lot of money in interest. A lower rate will keep monthly payments lower or even provide the ability to pay back the loan faster.
Working on your credit scores may take weeks or longer, but it can be done. Here are some ideas to try:
1. Pay all of your bills on time. If you haven’t been doing so, it could take up to six months of on-time payments to see a significant improvement.
2. Check for errors on credit reports. Be sure that your credit history doesn’t report a missed payment in error or show a debt that’s not yours. You can get free credit reports from the three main reporting agencies.
To dispute a credit report, start by contacting the credit bureau whose report shows the error. The bureau has 30 days to investigate and respond.
3. Pay down debt. Installment loans (student loans and auto loans, for instance) affect your DTI ratio, and revolving debt (think: credit cards and lines of credit) plays a starring role in your credit utilization ratio. Credit utilization falls under FICO’s heavily weighted “amounts owed” category. A general rule of thumb is to keep your credit utilization below 30%.
4. Ask to increase the credit limit on one or all of your credit cards. This may improve your credit utilization ratio by showing that you have lots of available credit that you don’t use.
5. Don’t close credit cards once you’ve paid them off. You might want to keep them open by charging a few items to the cards every month (and paying the balance). If you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.
6. Add to your credit mix. An additional account may help your credit, especially if it is a kind of credit you don’t currently have. If you have only credit cards, you might consider applying for a personal loan.
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What credit score is needed to buy a house? The number depends on the lender and type of loan. An awesome credit score is not always necessary to buy a house, but it helps in securing a lower rate.
Ready to shop for a home? SoFi offers fixed-rate mortgage loans with competitive rates and perks.
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