Strictly speaking, you don’t need a credit score to buy a house. If you’re paying cash, no one necessarily cares if you have good credit. However, if — like most aspiring American homeowners — you’ll need financing, then a credit score is a concern. Show
Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions. Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for. So, what is a good credit score to buy a house? It depends on the type of mortgage you’re seeking: Federal Housing Administration (FHA) loans, conventional loans, and jumbo loans all vary when it comes to the credit score needed to buy a house. Generally speaking, you’ll likely need a credit score of at least 620 — what’s classified as a “fair” rating — to qualify with most lenders. If you opt for an Federal Housing Administration (FHA) loan, you might be able to get approved with a credit score as low as 500. Credit score needed to buy a house by mortgage typeThere’s no single, specific credit score that’ll automatically qualify you for a mortgage (though having the maximum 850 score never hurts). But while they don’t set precise qualifying numbers, lenders do have minimum credit score requirements. The minimum credit score to be eligible for a mortgage depends on the type of loan and lender.
What is a good credit score for buying a house?When considering the best credit score to buy a house, many lenders use the FICO (Fair Isaac Corp.) model for credit scores. It grades consumers on a 300- to 850-point range, with a higher score indicating less risk to the lender.
How your credit score affects your mortgage rateAlthough it’s up to specific lenders to determine what score borrowers need to be offered the lowest interest rates, sometimes even a difference of a few points on your credit score can affect your monthly payments substantially. For example, the difference between a 3.5 percent interest rate and a 4 percent rate on a $200,000 mortgage is $56 per month. That’s a difference of $20,680 over a 30-year mortgage term. “A low credit score can make it less likely that you would qualify for the most affordable rates and could even lead to rejection of your mortgage application,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling. “It’s still possible to be approved with a low credit score, but you may have to add a co-signer or reduce the overall amount you plan to borrow.” A co-signer would be responsible for the debt, however, so it’s not always easy to get someone to agree. Plus, if you miss payments, it could damage your co-signer’s credit — and your relationship with them. Here’s how much you’d pay at the current rates (as of August 2022) for each credit score range. These examples are based on national averages for a 30-year fixed mortgage loan of $300,000.
Bankrate’s loan comparison calculator is a handy tool to help you see interest rates for credit scores. You can also use Bankrate’s mortgage APR calculator to run the numbers and see what your monthly mortgage payment might look like with different APRs. Why your credit score matters to lendersYour credit score helps lenders determine your ability or inability to repay the mortgage (and, subsequently, their risk). Lenders also examine your debt-to-income ratio (DTI), the percentage of monthly debt obligations relative to how much income you bring in. To illustrate, if you earn $4,000 per month, and have $1,250 in credit card, loans, housing and other payments, your DTI ratio would be 31 percent. The ideal ratio is less than 36 percent, though some lenders will accept more with a higher down payment. Can I get a mortgage with a low credit score?It is possible to get a mortgage with a low credit score, but you’ll pay higher interest rates and higher monthly payments. Lenders may be more stringent about other aspects of your finances, such as your DTI ratio, if your credit is tarnished. Keep in mind that credit requirements vary from lender to lender. Shop around with multiple lenders to find one that will work with you. How to improve your credit score to buy a houseBefore you look at houses, it’s smart to check your credit score and pull your credit reports from the three major credit agencies. Addressing credit issues early on can help you raise your score before you apply for a mortgage. If your credit score isn’t great, there are still options. Instead of settling for the mortgage rates you currently qualify for, consider postponing homeownership and working to boost your credit score and improve your options. Here are some quick tips to help: 1. Check your credit report and correct any errorsBefore applying for a mortgage, request a copy of your credit reports from the three major credit agencies: Experian, Equifax andTransUnion. Normally you can access your credit reports from each bureau for free once per year, but due to the COVID-19 pandemic, you’re entitled to a free credit report from each of the agencies once a week through the end of 2022. If you find inaccurate or missing information, file a dispute with the credit reporting agency and the creditor. Clearly identify each item you’re disputing and be sure to include supporting documents. 2. Pay down credit card balances to below 30 percent of your credit limitYour credit utilization ratio is the amount of debt you have compared with your available credit. To calculate this, divide the amount of debt into the amount of available credit. If you have $10,000 in debt and $20,000 in available credit, for instance, your credit utilization ratio is 50 percent. Lenders like to see credit utilization of 30 percent or less. 3. Pay all bills on timeYour payment history accounts for 35 percent of your credit score. While late payments stay on your credit report for seven years, their impact on your score diminishes over time. 4. Don’t close older credit lines after paying them offClosing unused accounts sounds like a good idea, but it may raise your credit utilization ratio and cause your credit score to drop. 5. Don’t open any new lines of credit or take out large loansGenerally, the less debt you have, the better off you are when you apply for a mortgage. FICO recommends not opening new credit accounts to increase your credit utilization ratio because each credit request can lower your score slightly. Once your credit has improved, rate shop within a 30-day window. Spreading out the rate inquiries can hurt your score. You can also use our mortgage calculator to estimate your monthly mortgage payments. Bottom line on credit score needed to buy a homeThere’s no universal credit score you’ll need to buy a house, as score requirements differ based on the type of loan you’re applying for. At a bare minimum, you’d want a score around 620, unless you’re going for a FHA. And, as a general rule, the higher your score is, the easier it will be to qualify for a mortgage. That’s why it’s essential to improve your credit score for better mortgage rate offers from lenders. What can I get with a 600 credit score?Since 600 is considered to be a fair credit score, borrowers with this score generally won't qualify for credit cards with large welcome bonuses, generous rewards and perks or low APRs. However, there are still some options available — using a secured card or becoming an authorized user on someone else's card.
What can I get with a 500 credit score?Credit cards you can get with a 500 credit score. Capital One Platinum Secured Credit Card: No credit history. ... . Petal 1 “No Annual Fee” Visa: No credit history. ... . Discover it Secured: No credit history. ... . Petal 2 “Cash Back, No Fees” Visa: No credit history. ... . Mission Lane Visa: Bad to fair (300-670). |