The Magic Number for Homebuying
You want to buy a house, and your credit score is the first thing lenders look at. There is no single magic number that unlocks the front door, but there are clear thresholds. Different loan types have different rules, and your score dictates the interest you pay every month for decades.
While lenders look at your full financial picture, your score tells the story of how you handle debt. A higher score means you pose less risk to the bank, which translates to a lower annual percentage rate (APR), the yearly cost of borrowing money including interest and fees.
Score Requirements by Loan Type
Different mortgages have different baselines. Government-backed loans are generally more forgiving than conventional loans.
- Conventional loans: These usually want a score of 620 or higher. If you want the best rates, you will want to aim closer to 740.
- FHA loans: Backed by the government, these can accept scores as low as 580 with a small down payment, or even 500 with a larger one.
- VA and USDA loans: These do not have a hard government minimum score, but individual lenders usually look for at least 620.
Meeting the minimum just gets you in the door. It does not get you the best deal.
How Your Score Decides What You Pay
Lenders use tiers to price your loan. Let us say you and a friend both borrow three hundred thousand dollars. If your score is 760 and theirs is 640, you will get a lower APR. Over thirty years, that small difference adds up to tens of thousands of dollars in interest.
When you are getting ready to buy, you might also be looking at Banking & Savings to stack up your down payment. Keep your cash liquid and safe while you build your score. Just like high-yield accounts pay you an annual percentage yield (APY), the yearly return on your savings including compound interest, your credit score pays you back in lower borrowing costs.
Building Up Your Score Before You Buy
If your score is not quite where it needs to be, you have time to fix it. Do not rush. Start by pulling your credit reports and checking for errors.
If you are starting from scratch, look at Cards for building credit to establish a history of on-time payments. You might also want No annual fee cards so you are not wasting money on yearly costs while you try to save for a house. Some people use Cash-back cards for daily spending to maximize small wins, but the golden rule is paying the balance in full every month.
If you run a side hustle, Business cards can keep your personal credit clean by keeping business expenses separate. Just remember that mixing up your credit types or taking on new debt right before applying for a mortgage can hurt your chances.
Other Things Lenders Check
Your credit score is huge, but it is not the only thing. Lenders also look at your debt-to-income ratio, which compares your monthly debt payments to your gross monthly income. They want to see that you have enough room in your budget to comfortably make the house payment.
You will also need to think about Mortgages, Loans, Insurance, and other ongoing costs of homeownership. Property taxes and homeowners insurance get rolled into your monthly payment, and lenders factor those in when deciding how much house you can afford.
The Common Traps to Avoid
People often make mistakes in the months leading up to a home purchase. Do not close old credit cards, because that shrinks your total available credit and can shorten your credit history length. Do not buy a car or finance furniture before closing on the house, because new debt changes your debt ratio and can tank your score overnight.
The catch is that checking your own credit does not hurt your score, but a hard inquiry from a lender does. Try to do all your mortgage shopping within a short window so multiple lender pulls count as a single inquiry.