What Credit Score Do I Need To Buy A House?
In this article, we explore the question: what is a good credit score to buy a house?
When you are looking for a home loan, your credit score is one of the most important criteria considered by the lender. With a good score, you can almost be assured of getting a mortgage at a reasonable interest rate. However, there is no score considered to be completely optimal as the criteria differ from lender to lender when it comes to offering credit.
Regular mortgages are not backed by any government agency. However, they must comply with the Fannie Mae and Freddie Mac underwriting guidelines.
When applying for a conventional or online mortgage, you should have a credit score of 620 or above to get qualified. If you have a higher score, it will likely allow you to make a lower down payment starting at 3% of the property’s value.
- Federal Housing Administration (FHA) loans are approved by FHA-authorized lenders and insured by the FHA.
- Ideal for borrowers with lower income, these loans require minimum scores and down payments when compared to their counterparts.
- You can expect to qualify even if you have a score of 580. If it is below 580, you will likely have to make a down payment of 10% or more.
- The United States Department of Veterans Affairs offers these mortgages to select groups.
- The VA sets the qualification criteria, the terms of repayment, and guarantees a part of the loan.
- The VA does not finance any loan. Instead, banks and mortgage lenders offer them.
- Veterans, active service members, and surviving spouses are eligible for these loans.
- These are zero down payment mortgages designed for rural homebuyers.
- Initiated to improve the quality of life in rural areas, these loans offer zero down payment and lower interest rates, making them more easily accessible.
- Similar to FHA and VA-authorized loans, these mortgages are also guaranteed. The USDA guarantees loans issued through local lenders.
- Interest rates start from as low as 1%.
What Score Do I Need To Get The Best Rates?
FICO considers five ranges for a credit score to buy a house, ranked from low to high. To get an indicative rate for each of the ranges lets us assume that you have a mortgage for 30 years with a fixed APR (annual percentage rate).
- Very Poor (Below 580) - You can expect an interest rate of 6.352%.
- Fair (580 to 669) - The expected range of interest rates is 5.588%.
- Good (670 to 739) - You can expect the interest rate to 5.158%.
- Very Good (740 to 799) - You can expect an interest rate of 4.767%.
- Exceptional (800+) - The expected range of interest rates is 4.545%
The size of your down payment is also important. If you pay at least 20% of the property cost upfront, you can improve your chances of getting approved and it will also help you pay off your mortgage earlier.
Your employment and credit history are other factors that can decide the outcome of your application. Showing a lender that you have been receiving regular paychecks and have not left any unpaid bills over the years will ultimately be in your favor.
So, what is the minimum credit score to buy a home?
There is no definitive answer to the minimum credit score requirement for buying a home because it depends on several crucial factors including the mortgage type and lending criteria, especially for specialty loan types like FHA, VA, and USDA loans.
If you do not want to opt for traditional lenders, you can consider newer online options and explore the different ways to get approved for an online mortgage. When you want the best rates possible, the minimum requirements are a score of at least 740. Accordingly, you should look at positive ways to build your credit history and raise your score to access the best rates and terms.