What Credit Score Do You Really Need To Buy a Home?

Trying to understand what lenders require can feel impossible. In fact, according to Fannie Mae, 90% of buyers either have no idea what credit score lenders are looking for or they overestimate the minimum needed.

Let that sink in. Most homebuyers think they need better credit than they actually do. Could you be one of them? Maybe you believe buying a home is out of reach for you right now, even if it isn't.

Let’s look at what the data really says about credit scores and homebuying.

There's No One Magic Number

There is no universal credit score you absolutely must reach before buying a home. In fact, there's much more flexibility than most people realize. This graph shows the median credit scores recent buyers actually had, and the types of home loans they were able to secure:


Source: CFPB, Experian

Here's what matters. The numbers will always vary. There is no one-size-fits-all threshold. That is good news, because it could open doors you thought were closed to you.

How can you find out? The best way to learn more is to talk to a trusted lender. As myFICO explains:

"While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable.
 
There is no single ‘cutoff score’ used by all lenders, and there are many additional factors that lenders may use..."

Your Credit Score Does Matter

When you buy a home, lenders use your credit score to get a sense of how reliable you are with money. They want to see if you typically make payments on time, pay back debts, and more.

That means your score will impact which kinds of loan you qualify for, the loan terms, and the interest rate. All of those things influence monthly payments, and that in turn will influence how much house you can afford.

Put simply, your score might not prevent you from buying a home, but it will heavily influence which home you are able to buy. As Bankrate says:

"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."

That still doesn’t mean your credit has to be perfect. Even if your credit score isn’t as high as you’d like, you may still be able to get a home loan.

Improve Your Credit Score

If you talk to a lender and decide you want to improve your score (and hopefully your loan type and terms), here are a few smart moves according to the Federal Reserve Board:

  • Pay Your Bills on Time.
    This is a big one. Lenders want to see you can reliably pay your bills on time. This includes everything from credit cards to utilities and cell phone bills. Consistent, on-time payments show you’re a responsible borrower.
  • Pay Down Your Debt.
    When it comes to your available credit amount, the less you’re using, the better. Focus on keeping this number as low as possible. That makes you a lower-risk borrower in the eyes of lenders – making them more likely to approve a loan with better terms.
  • Review Your Credit Report.
    Get copies of your credit report and work to correct any errors you find. This can help improve your score.
  • Don’t Open New Accounts.
    While it might be tempting to open more credit cards to build your score, it’s best to hold off. Too many new credit applications can lead to hard inquiries on your report, which can temporarily lower your score.
  • Don’t Fall For Credit Repair Scams.
    Beware of anyone who promises a quick easy fix. These promises are almost always scams, and often put their victims in a worse situation.

To learn more about your credit, your options to repair it, and avoiding scams, visit the FTC Consumer Advice page.

Bottom Line

Your credit score doesn’t have to be perfect to qualify for a home loan. But a better score can help you get better terms on your home loan. The best way to know where you stand and understand your options for a mortgage is to connect with a trusted lender.

More questions? Call me! 239.671.7279