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What Credit Score Do I Need to Buy a Home?

INDIANAPOLIS, United States - October 25, 2023 / Grandview Lending, Inc. /

You have probably heard people say before that it is important for you to have a high credit score when shopping for a home. But have you ever wanted to know the exact credit score you need? That is the question we are going to answer in this article. But first, let’s explain briefly why your credit score is so crucial during the home-buying process.

Why Your Credit Score is Important When Buying a Home

Your credit score shows lenders how likely it is that you will be able to make timely, full payments on your mortgage every month. As such, lenders use it as one of the major indicators that determine your qualifications as a homebuyer.

You need a certain minimum credit score to qualify for a mortgage at all. If you do not have that minimum score, you may not be able to move forward with a home purchase until you do. We will discuss this more shortly.

The higher your credit score, the more competitive the loan offers that you will receive. You will be able to qualify for a lower down payment amount and/or more affordable interest rates.

When we are discussing what credit score you “need” to buy a home, you will need to decide what, at a minimum, you are trying to accomplish.

Do you just want to be able to buy a home at any interest rate and down payment amount? Or are you aiming for a particular interest rate or down payment amount? If the latter, then you may need a higher credit score than the bare minimum to buy a home.

Ideal Credit Scores for Home Purchases

First, let’s talk about ideal scores for buying a home. Note that these are not the minimum scores. Those are quite a bit lower, as you will learn shortly. If your credit score is 740 or higher, in general, you should be in great shape for purchasing a home. FICO scores can range up to 850. So, if your credit score is 740 and you think you can improve it even more, go for it. It never hurts to have your credit score as high as it can go. Maximizing your score is what allows you to get the most competitive loan offers with the most affordable rates.

Minimum Credit Scores to Buy a Home

Thankfully, you do not need to have a credit score of 740 or above to purchase a home. The exact minimum score you need will depend on the type of home loan you want to qualify for as well as your lender. As an example, consider FHA mortgages. These loans are backed by the Federal Housing Administration. Because this is the case, the credit requirements are relaxed compared to conventional loans, while the loans still feature competitive interest rates. To qualify for a low down payment, you will want a credit score of 580 or above. You may also qualify even if your credit score is between 500 and 579, but the down payment will not be as low.

What if You Do Not Have the Minimum Credit Score to Buy a Home?

Hopefully, you will discover that you do have the minimum credit score to purchase a home. But if you do not, try not to worry. Your credit score is not something that simply happens to you. If you find your credit score is lower than you would like, you can be proactive in improving it. Do not forget to work on your other financial metrics too. You may be able to improve your debt-to-income ratio or demonstrate that you hold significant assets. Also, if your score is simply lower than you want it to be, do not assume you will not qualify for affordable rates. Loan products like FHA, USDA, and VA can bring you more competitive rates than you might expect.

How Can You Raise Your Credit Score Before Buying a Home?

Here are a few options for how you can increase your credit score to improve your homebuyer profile:

Check what is going on with your bills. Are you behind on any of them? If possible, catch up. Going forward, use automatic payments if you are forgetful. That way, you will not fall behind again.

Request the free credit reports you are entitled to once a year. Search them for errors and report any you discover.

Reduce your credit utilization ratio.

There are services that allow you to opt into reporting certain payments (i.e. your phone bill) to the credit bureaus. Sign up for these if it will benefit you.

Discover more ways you can increase your credit score when you are in the market for a home. Looking for personalized advice on how you can increase your credit score before you buy a home? That is something we can assist you with.

Get Answers to Your Credit Score Questions from Grandview Lending

Assessing your qualifications to buy a home on your own may be a challenge, especially without a perfect credit score. Grandview Lending can help. Call us to schedule a consultation, and we will let you know what you may qualify for based on your credit score and the other information you share with us. To get started now, please contact us at (317) 255-0062.