What credit score do I need to buy a house? - Roost
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What credit score do I need to buy a house?

Know your credit score and know your chances

Let’s make one thing clear: you don’t need a perfect credit score to buy a house. Your credit score helps lenders estimate the risk that you won’t repay the loan, so they’re more likely to reward someone with a higher score. If you have a score in the 700s, for example, you might have more options and get a lower interest rate. But, in some cases, if you have a score in the 500s you can still qualify for certain types of loans. Read on to learn more about different types of loans and the credit scores you’ll need to get those loans

What credit score do you need for the loan you want?

There are several different types of loans you may consider applying for, and it’s important to know that each type has a slightly different set of qualifications and a slightly different suggested credit score. Check out the chart below to learn more:

Loan Type RequirementsCredit ScoreDown Payment
Standard LoanConventional bank loan6205%-20%
VA LoanFor active-duty service members and their families580-620None
FHA LoanDesigned for low-to-moderate-income borrowers500-580, depending on how much money you put down3.5%

FHA loans for first-time buyers

A Federal Housing Authority (FHA) loan could be the perfect choice for you if you’re a first-time home buyer, especially with little or no credit history. Because this type of loan is insured by the FHA, it allows borrowers with lower credit scores, in the range of 580 or even lower sometimes, to secure loans with a down payment of as little as 3.5%. Since many first-time buyers lack a strong credit history and often can’t afford a larger down payment, this could be the perfect loan to get you started.

How do I find my credit score?

So, you want to know if your credit score is up to snuff if it’s good enough to position you to buy a house? Well, then, you better take a peek at it. But how?

Before we get into that, let’s get one thing straight: checking your credit score will not lower it. This is a common misconception, and it’s just not true. It’s a good idea to periodically check your credit score, especially if you’re planning on getting a home loan.

You can — and should — check your credit regularly. That way, you can see if it drops and address the situation quickly and efficiently. There are many services that offer free access to your credit score. Your bank or credit card may offer this service to you already, so it’s a good idea to ask. 

There are three major bureaus: TransUnion, Experian, and Equifax. Your score may be slightly different from each bureau (because of slight differences in reporting), so you may want to check them all.

What else do mortgage lenders look for?

Now that you know a bit about the magic number that is your credit score, you should know that it’s only one piece of the puzzle. Mortgage lenders look at several other factors when they’re deciding whether or not to give you alone. Some of those factors are:

  • Your income: While your income doesn’t play a role in your credit score, it is an important factor in your loan application. Lenders want to know if you have enough money coming in each month to make your payment,, so they’ll take a close look at your household income.
  • Assets: You lenders will also want to see what assets you have: money in checking and savings accounts, investments (like stocks and bonds) and the like. These assets can make you seem less risky to lenders.

What if you have bad credit?

While having a good credit score will make it easier for you to get a loan (and one with a favorable interest rate), there are ways to get a mortgage if your credit is… less than perfect. You can consider seeking out non-conventional loans, putting down a larger down payment, finding a co-signer, and more. Having bad credit is not a deal-breaker, but improving your score might be a better strategy in the long run, if you can manage it. 

Over the life of your loan, having a lower interest rate can save you a lot of money. For example, if you have a 30-year loan at 4%, you can expect to pay $343,739 over the course of your loan, but if you have the same loan at 3.75%, you’ll end up paying $10,000 less ($333,443). You can see how having a good credit score is important.

In addition to the traditional credit score, FICO has recently developed a new metric, called the Resilience Index. This is a score between 1-99, with 1 being the best, that measures how well you’ll be able to deal with difficult financial situations, like a nationwide recession. This measurement is fairly new and untested, but it represents a new metric that financial institutions can use to see how you can deal with periods of economic volatility.

How do I improve my credit score?

There are a few steps you can take to improve your credit score. Some of them are simple, some of them take a little more effort, but they’ll all go a long way toward bringing you up to where you’d like to be. Here are some suggestions:

  • Pay off some of your debts: Your debt-to-income (DTI) ratio is an extremely important factor in determining your credit score, so it’s a good idea to keep your debt down. If you can pay off some of your debts, you’ll improve your DTI.
  • Don’t open any new accounts: This is key. If you’re considering applying for a loan, you should put a freeze on applying to new accounts. Any new lines of credit will ding your credit score, so do yourself a favor and don’t apply for that department store credit card until after you’ve got your mortgage!
  • Keep your balances low: Again, this will help with your DTI. You don’t want to carry a huge balance on any of your accounts, so keep that in mind when you’re deciding where to make your payments.
  • Have a strong mix: You don’t want to have only one type of credit, if you can swing it. Having a mix of credit cards and loans will show potential lenders that you can consistently make payments across a variety of credit lines.
  • Keep cards open: Now, if you’ve taken our advice above and paid off a card or two, it might be tempting to close it out… but don’t. If you keep the cards open, the amount of credit available to you won’t go down, which would affect your credit utilization numbers.
  • Monitor your credit and dispute inaccuracies: Don’t be afraid to access your credit score. Occasionally, there will be errors on it, and the only way to find those — and fix them — is to check your credit regularly.

Credit where credit is due

Your credit score is a snapshot of your credit history. How long have you had credit? How much do you owe? What’s your history of paying your loans off? All of this information is collected by the credit agencies and transformed into a three-digit number. That little number plays an important role in helping you secure that home loan. You’ll want to check your score regularly and make sure it stays within the range you’re shooting for.
Remember, the range may differ based on where you are in the country and other economic factors, but you’ll want to aim for a score of about 630. If you’re above (or well above), you’re golden. If you’re below that, then you should think about building your credit up before you start looking for a home. After all, if you do have a low credit score, you could end up with a loan that’s not favorable to you, and you’ll want to avoid that at all costs.

A quick note! Our goal is to gather and share info that’s up-to-date and helps you make great decisions as a renter. That said, the information you get directly from a provider could be a little different. Make sure to review their terms and conditions directly; and, if you see anything here that needs to be updated, please let us know! Advertising disclosure
Last Updated: February 9th, 2021