What Credit Score Do You Need to Buy a House

Welcome to the show. If you are thinking about buying a house, you know your credit score is the first thing a lender looks at. There is no single magic number that opens every door, but there are definitely thresholds you should know about. Your score tells the bank how you handle debt. A higher score means you look like less of a risk, which usually gets you a lower annual percentage rate, or APR. Think of the APR as the total yearly cost of borrowing money, including interest and fees. Different loans have different rules. Conventional loans usually want a score of 620 or higher. If you want the best rates, you should aim for 740. Then there are FHA loans, which are backed by the government. These are more forgiving. You might get approved with a score as low as 580 if you have a small down payment, or even 500 if you put more money down. For VA and USDA loans, there is no hard government minimum, but most lenders still look for at least 620. Keep in mind that just meeting the minimum gets you in the door, but it rarely gets you the best deal. Lenders use tiers to set prices. If you and a friend borrow the same amount but your score is 760 and theirs is 640, you will pay a lower rate. Over thirty years, that small difference adds up to tens of thousands of dollars in extra interest. While you are getting your score up, you might be saving for a down payment. Keep that cash somewhere safe and liquid. Just like high-yield accounts pay you an annual percentage yield, or APY, which is the yearly return on your savings including compound interest, your credit score pays you back in lower borrowing costs. If your score is not where it needs to be, do not rush. Take the time to pull your credit reports and check for errors. If you are just starting out, look for cards that help you build credit by showing you make payments on time. Try to find cards with no annual fee so you are not wasting money on yearly costs while you save. Some people use cash-back cards for daily spending to get small wins, but the golden rule is always paying the balance in full every single month. If you run a side hustle, business cards can help keep your personal credit clean by keeping those expenses separate. But be careful. Mixing up credit types or taking on new debt right before you apply for a mortgage can hurt your chances. Remember, your score is huge, but it is not the only thing. Lenders also check your debt-to-income ratio. This compares your monthly debt payments to your gross monthly income. They just want to see that you have enough room in your budget to comfortably make the house payment. You also need to think about other ongoing costs like property taxes and homeowners insurance. Lenders factor those into your monthly payment to decide how much house you can afford. Avoid some common traps in the months leading up to a purchase. Do not close old credit cards. That shrinks your total available credit and can shorten your credit history length, which hurts your score. Also, do not buy a car or finance new furniture before you close on the house. That new debt changes your ratio and can tank your score overnight. Here is the catch: 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 those multiple lender pulls count as a single inquiry. For the full written version of this guide with all our sources, head over to voatlas.com.