What Credit Score Is Needed to Buy A Home?

Your credit score is a fundamental component of a mortgage lender’s decision to approve you for a loan. It can also affect the interest rate and loan amount you can secure.

Along with your income history and down payment, a solid credit score is one of the three most important things you’ll need when it comes to buying a home.

Credit scores themselves, however, can be a complicated business. And finding out what score you need to buy a home and how to achieve that score can also be a complex topic.

So, in this post we’re going to break down some credit score basics as they relate to buying a home.

Types of credit scores

You may have heard of the three main credit bureaus, TransUnion, Experian, and Equifax. Each of these bureaus keeps a detailed credit history for everyone in America (except for those who have yet to open a line of credit or take out a loan).

Since each credit bureau may have slightly different information available data to draw from, your credit scores from each company may vary.

However, when it comes to buying a home, most lenders use a standard scoring model called a FICO score to ensure that all mortgage applicants are treated fairly when they seek a loan.

Things are further complicated by the fact that there are several different FICO scoring models designed for different types of credit. So, if you’ve seen your FICO score when applying for an auto loan, it may be a different score than you will see when applying for a mortgage.

Build credit; raise your credit score

All of the types of credit scores and scoring models can be confusing. But what you mostly need to worry about is how to boost your score.

Your credit score will be based on five main factors:

  1. Making on-time payments

  2. The percentage of available credit (not maxing out your cards)

  3. Having diverse types of credit (auto loans, student loans, credit cards, etc.)

  4. Not opening new lines of credit frequently (a red flag that you’re struggling financially)

  5. The length of your credit history, or how long you’ve been consistently paying your bills

What score do you need to buy a home?

There are several different mortgage types available for buyers. First-time homeowners, veterans, people seeking to buy a home in a rural area, and any other number of circumstances can help you qualify for mortgages even if you have a low credit score.

A general rule, however, is that it’s always better to apply for a mortgage with a high credit score to help you secure the best possible interest rate. 

Some programs do have minimum credit scores that they will accept for a mortgage. FHA loans are one common example. The Federal Housing Authority guarantees loans for people across the country who are hoping to buy their first home (or who haven’t owned a home in the last three years). Their guarantee is what enables lenders to safely approve mortgages for borrowers with low credit scores. The current requirement for an FHA loan is a credit score of 580 or higher for a mortgage with a 3.5% down payment. You can secure an FHA loan with a lower credit score, but you’ll have to make a larger down payment.

There are several other options available for hopeful homeowners when it comes to mortgages. But, if you aren’t planning on moving in the next few months and your credit score could use some work, now is the time to start focusing on building credit.

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How to Manage Your Budget and Maintain Your Sanity When Buying a Home

Buying a house is never a simple decision. Aside from all of the financial aspects of purchasing a home, there are numerous life-related considerations you’ll need to think about. So, it comes as little surprise that diving head on into the house hunting process can be stressful and taxing to the home buyer.

With all of the different numbers to keep track of–a down payment, closing costs, credit scores, interest rates, and so on–it’s easy to get lost in the finer details of your budget. This can lead to even more stress as you try to navigate your way through getting approved for a mortgage and shopping for the perfect home.

In this article, we’re going to give you some tips on how to maintain your budget and reduce stress throughout the home buying process. That way, when you do finally find the house you’ve been waiting for, you’ll be able to move forward confidently.

Trust the process

Many first-time home buyers enter the real estate market with little knowledge or experience of how things work. Any newcomer to such a huge and complex industry is bound to be flustered with all of the different options available to them.

However, much of the home buying process is relatively standardized. Real estate agents all make roughly the same commission, lenders use similar algorithms to decide how much of a loan you’ll be approved for, and real estate contracts contain legal safeguards and contingencies to ensure that you and the seller’s interests are protected.

When shopping for a mortgage or getting pre-approved, it’s a good idea to ask friends, family, or read reviews online to find someone you know you can trust. From there, rely on the experts to lead you through the process.

Have a long-term plan

Much of the stress and anxiety around buying a home comes from the uncertainty of the future. Sitting down with your family and significant other and deciding your long-term goals for homeownership is a good way to build confidence and know that you’re making the right choice.

Determining things like location, the number of years you want to live in a home, and what priorities are the most important (school districts, neighborhood safety, etc.) will help you make that plan a reality.

Use the tools at your disposal

If you’re reading this article, you already have started to take advantage of one of the most important resources you have, the internet. Look up real estate terminology you’re unfamiliar with, read up on the different types of mortgages, and take advantage of free online calculators to create what-if scenarios to find out what you might end up paying in closing costs and interests.

It’s also a good idea to check your credit score for free online. You can check your official reports once per year, but for simple credit checks you can look it up each month for free.

Knowing that you’re in good hands with a lender and agent, that you have a basic understanding of industry terms, that you have a long-term plan, and that your finances are in order will all help set your mind at ease and give you confidence as you move forward toward homeownership.