The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
What Credit Score is Needed to Buy a House?
Your credit score affects everything — especially a home purchase. Since a mortgage is probably the single biggest loan you will ever seek, it’s wise to study up and learn what credit score is needed to buy a house, which includes qualifying for a home loan and getting the lowest possible interest rate.
Imagine this scenario: you and your friends are heading to a cool spot you read about online. Everyone excitedly gets in the car. About an hour into the trip, your navigation app stops working. Now imagine that same scenario, but the destination is buying a home and your credit score is the navigation.
Your credit score affects everything. It’s no wonder it plays a major role in navigating one of the biggest decisions of your life. Your credit score determines if you can qualify for a mortgage loan, the interest rate of that loan and the down payment requirements.
But don’t panic, there are loan options for a wide range of credit scores. Read on to learn what credit score is needed to buy a house and equip yourself with everything you need to know about how your credit factors into the homebuying process.
Let’s start with credit ranges.
FICO® is the credit score rating system most widely used by the three major credit bureaus — Equifax, TransUnion and Experian. Here are the ranges and what they mean:
- 800+ = Exceptional
- 740-799 = Very good
- 670-739 = Good
- 580-669 = Fair
- 579 or less = Poor
What is the minimum credit score needed for a mortgage loan?
Each home loan has a different minimum score required to get approved for that loan. While there are mortgage options for those with fair or even poor credit, potential lenders will offer more choices and lower interest rates to those with a very good or exceptional credit score. To put this into perspective, imagine you lent money to someone and they dragged their feet when it came time to pay you back. You would probably have reservations about loaning to that person again.
That’s exactly how lenders feel about mortgage loans. There is less risk to lend to people who have a history of on-time payments to their creditors, which boosts their credit score. So, a higher credit score makes lenders more confident the loan will be paid on schedule.
Check out this table to see the credit score requirements for each loan type.
Credit Scores and Interest Rates
Your credit score influences the interest rate you can get on a mortgage loan. It’s not only an essential factor in determining if you qualify for a mortgage loan, but it can also affect your mortgage rates and how much you’ll have to pay for private mortgage insurance (PMI) if you put less than 20% down on the cost of your new home.
The higher your credit score, the smoother the mortgage process will go. This will help you set a positive tone for the entire homebuying experience.
Want to see how much home you can afford? Estimate your monthly payments with our Home Purchase Affordability Calculator.
How to Find Your Credit Score (and Improve It!)
Your credit report shows your credit score and credit history. If you’re looking to increase your score, you’ll want to start by first obtaining your credit report and then working to boost your numbers. Follow these steps to get started:
Step 1: Check your credit score by getting a copy of your credit report. FYI: all three of the credit bureaus offer a free credit report1 each year. You can also visit freecreditreport.com to obtain a copy of your Experian Credit Report and FICO® Score.
Step 2: Look for errors on your credit report and dispute any you find with the credit bureau and the lender.
Step 3: If possible, pay down any credit card balances to reduce your credit utilization rate.
Step 4: Don’t apply for any new types of credit in the weeks and months leading up to your mortgage application.
Step 5: Continue to pay your bills on time each month. This is one of the biggest influencers when it comes to improving your score.
Where Do I Get a Mortgage Loan?
There are many options for getting a home loan. Some people prefer working directly with mortgage lenders or mortgage brokers. Others prefer to work with the bank or credit union where they have their other financial accounts. Credit unions may also have programs to help with the costs of purchasing a home; for example, Desert Financial offers $500 toward your closing costs if you use a Participating Real Estate Broker.2
Credit unions are a popular choice due to their community and member-centric approach. Being not-for-profit, credit unions reinvest earnings back into their institution and distribute dividends to their members. They also support and help local nonprofits.
Specific to mortgages, credit unions tend to stand out from the pack since they usually have low upfront costs and interest rates, as well as flexible down payment options. Plus, credit unions have membership perks and rewards that you won’t find at other financial institutions.
The Bottom Line
Buying a home is a major milestone, and it can take some preparation before you’re ready to take this important step. If you’re in the market to buy soon, follow our steps to help get you mortgage-ready by the time you find the perfect pad.
Whether you have a credit score of 800 or 650, there are options for purchasing a home. And even if your credit isn’t ideal when you buy, don’t worry — if you improve your credit score later on after your home purchase, you can look at refinancing your mortgage at a better rate!
2Participation in the Real Estate Broker Program is voluntary. Desert Financial Credit Union and its subsidiary Define Mortgage Solutions LLC do not receive any benefit, monetary or otherwise, from the Participating Broker under this program. Participating Brokers are non-affiliated third parties of Define Mortgage Solutions LLC and Define Mortgage Solutions LLC makes no warranties or representations about the services provided by Participating Brokers. To participate in this program, the member does not have to finance mortgage loan through Define Mortgage Solutions LLC. For full program details, see the Real Estate Broker Program Member Notice Acknowledgement.
Mortgage loans are offered by Define Mortgage Solutions, LLC, NMLS ID #1761612, a subsidiary of Desert Financial Credit Union. BK#0949053