Guide: What Is a Good Credit Score to Buy a House: 600? 650? 600? 720? 740? 770+?
For those individuals or couples without a plan, a credit score can be somewhat intimidating.
Since it is one of the main criteria that lenders and mortgage companies consider, those three digits can mean the difference between happily-ever-after and a complete new game plan for your living situation. So, what is a good credit score to buy a house?
If your credit doesn’t meet their requirements, more than likely, you’ll have to start looking for another temporary situation, which could include high-priced rentals for another year. If buying is on your mind, it’s best to start working on your credit score today.
Not knowing what constitutes a good credit score to buy a house might be more of a burden than having a score that isn’t perfect. Your next questions will often be, “Is my credit score good enough to get a loan?” Or, “What is the minimal credit score to buy a home?”
In this guide, we will answer these questions and many more to determine a good credit score to buy a house and how to improve upon your current score.
What Is a Home Mortgage?
Before diving into the specific details of purchasing a home, what a good credit score to buy a house looks like, acquiring a mortgage, or looking into specific credit requirements, let’s first define a home mortgage. Specifically, a mortgage is a loan used to purchase a house. More than likely, the home mortgage will be the most expensive loan in a person’s life.
A home mortgage can be made up of multiple parts, and payments will need to be made for 15 to 30 years. Within a mortgage, some of the pieces that make it up include collateral, the down payment, which is usually 10 to 20 percent, along with applicable taxes and insurance. When considering the mortgage as debt, it’s important to also consider all of the moving pieces involved to determine a good credit score to buy a house.
Knowing these numbers will help determine a good credit score to buy a house.
What Is a Good Credit Score to Buy a House?
When asking yourself, “What is a good credit score to buy a house?,” several factors come into play. Since each lender is different, there isn’t an exact answer to this question. In fact, the minimal credit score needed can even change, given the state of the economy, especially in a recession.
It’s common for lenders to enforce more strict restrictions for borrowers when the economy is lower, rather than higher. During the previous housing collapse, applicants with scores around 720 (typically thought of as a good credit score to buy a house) were still being rejected.
Since 2008, the real estate market has greatly improved as a whole. The lenders have opened their gates somewhat on the minimal score needed to seek approval. So when asking yourself, “Is 650 a good credit score?” or “Is 740 a good credit score?” the debate is more open than a decade ago.
Today, conventional loans for Fannie Mae or Freddie Mac (the top lenders) are set at the minimal score of 620, but scores for FHA loans can be as low as 580. According to Bankrate, “An FHA loan is a mortgage insured by the Federal Housing Administration…that protects the lender from a loss.”
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Within an FHA loan, however, lenders can raise the bar within these requirements, when it comes to salary, down payment, and various other ingredients. In addition to overall approval, these factors will also affect interest rates, so it’s best to be above 600 in this scenario. Anything over 600 is a good credit score to buy a house.
Within these open-ended parameters, the following answers ring true about having a good credit score to buy a house:
- Is 600 a good credit score? It’s OK.
- Is 630 a good credit score? It’s OK.
- Is 650 a good credit score? Yes!
- Is 660 a good credit score? Yes!
- Is 720 a good credit score? Yes! Very Good!
- Is 740 a good credit score? Excellent score!
- Is 770 a good credit score Excellent score!
Consider the following example from Credit Sesame: “Let’s say you have a 640 credit score and you want to buy a $200,000 home.” The borrower puts down $20,000 as a down payment and that qualifies them for a 5 percent loan.
At this rate, the borrower will pay $170,000 in interest, but if they could pay closer to 20 percent, which is $40,000, they would only pay around $35,000 at 4.5 percent interest.
Which Credit Scores Do Lenders Use?
Credit Scores were developed because, previously, banks and lenders would make up their own score card to access borrowers.
It is more efficient to have a standardized score card. Today, the three major bureaus are Equifax, Experian, and TransUnion, where it’s possible to have a different score at each. These numbers come together to determine a good credit score to buy a house.
The scores at each can be different for a number of reasons, including the date they were last checked, the difference in a score model, and the information provided. For example, some check with your landlord while other will not (and most landlords don’t even report).
Overall, the minimal credit score required as a good credit score to buy a house will depend on the mortgage in question. The well-known FICO score, for example, which was developed by Fair Isaac, is used by approximately 90 percent of lenders in the industry and is becoming more available to individuals via bank accounts and the like.
In addition, the VantageScore is another option that is quite popular. Developed by Experian, Equifax, and TransUnion, the VantageScore takes into consideration items such as payment history and current amounts owed on open accounts.
Along with credit score, most lenders will also check information such as employment history and past salaries to make sure that payments will continue to be made on time. Essentially, your credit score checks your past, and they are doing their best to predict future payments. So, when it comes to questions like, “is 650 a good credit score?” you’ll know the answer.
Once a lender has confirmed your income, they will also check on the home you wish to purchase. They will check on the area and perhaps condition of the home, along with any other outside factors that could make the decision a risk on their part to provide the loan. Within these factors, they will add your score to determine if it is a good credit score to buy a house.
What if My Credit Is Bad?
So, what is a good credit score to buy a house? These questions are difficult. When asking, “Is 600 a good credit score?” or “Is 720 a good credit score?” it really just depends on your situation. If you have run one of the free online credit reports and have been diagnosed as “bad,” there are still options for you.
In addition, the credit reports that individuals get online are not necessarily the same numbers as those on a mortgage report. Some examples of these include Credit Karma and Free Credit Report, but there are many other options available when determining a good credit score to buy a house.
Your first worry will often be whether or not you need to pay a higher deposit due to your poor credit, assuming that denial is not an option. Even though poor credit can affect interest rates, it’s still possible to buy a home with bad credit, but it will involve more money and more work during your search. Now, let’s discuss the following chart that covers questions like, “Is 770 a good credit score?”
For certain lenders, this may be a more accurate likelihood of borrowing privileges:
- Is 600 a good credit score? No.
- Is 630 a good credit score? No.
- Is 650 a good credit score? It’s OK.
- Is 660 a good credit score? It’s OK.
- Is 720 a good credit score? Yes!
- Is 770 a good credit score? Yes!
- Is 740 a good credit score? Yes!
Even individuals with bankruptcies and foreclosures are able to buy homes in today’s economy. Due to various government-based mortgage programs, there are options for everyone. This is because the government is trying it’s best to improve the housing market, even for those with bad credit.
How to Purchase a Home with Poor or Mid-Level Credit
Whether you are wondering, “Is 660 a good credit score?” or “Is 770 a good credit score?” there are several options for you. The following list will detail a few steps to consider when trying to purchase a home for a weak or minimal type of credit score.
- Organize your information so you’ll know, “What is a good credit score to buy a house.” Lenders want to see specific financial documents for those who apply for a loan, so be prepared (especially if you have poor credit). Being organized includes paying bills when they are due, opening a savings account for future unexpected expenses, and paying off debts as soon as possible. Other necessary items may include pay stubs and W-2s, printed bank statements (if using an outside lender), investment information, retirement account information, and monthly billing statements.
- Consider the option of finding a co-signer. For many younger people, using your parent’s good credit is always an option (if both parties are willing). With a co-signer, also known as a guarantor, those with poor or lacking credit scores can obtain loans they otherwise would be deemed too risky for. Co-signers take some of the burden off of you because they are signing on as if the home were a joint venture. From the lender’s perspective, this adds additional security if there were ever a default on the loan.
- Look into getting an FHA loan when wondering things like, “Is 630 a good credit score?” As mentioned above, FHA loans are more secure than other loans because they are insured by the federal government. In addition, they also have lower credit requirements, and FHA loans are still possible for those with bankruptcies and foreclosures on their credit scores. With an FHA Loan, borrowers also can pay as little 3.5 percent down, rather than the typical 20 percent down payment.
All in all, there are several reasons why a person may have poor credit. With that in mind, staying organized, looking for a co-signer, and/or considering an FHA Loan are three potential options to purchase a home with poor or mid-level credit scores. Then, it’s less important to know the exact amount when asking, “What is a good credit score to buy a house?”
How to Buy a House with No Credit to Your Name
For some people, especially young individuals, it’s possible to have little or no credit. Whether you pay cash for most items or have just left the nest, maybe you’ve never had a reason to use items credit. This can be especially troubling when trying to determine a good credit score to buy a house.
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In the above section, we mentioned the possibility of an FHA Loan, as they are ideal for those with little or no credit. In this scenario, 580 might be considered a good credit score to buy a house, but it’s better to be constantly improving your score, and this could mean a higher down payment.
While saving for the down payment, one option to start building credit would be to acquire a credit card. Perhaps you’ve always been cautious of credit cards due to other people’s negative experiences, but as long as you use it wisely, like paying for goods and then paying it off each month, your credit can grow.
Another option would be finding a landlord or looking for a rent-to-own option. If you have spotty credit, it’s possible to find an individual or small company that will offer rent-to-own options, so it’s less significant to have a good credit score to buy a house.
As such, those who rent-to-own will pay monthly payments like a renter, but there is also a bonus amount included which pays escrow on the home. When the renter is willing, they can then turn that money into escrow and place a down payment on the home they were previously renting.
How to Prepare a Good Credit Score to Buy a House
The first key to buying a home is learning your credit score. The second is often beginning to bring up that score. Improving your credit score so it is a good credit score to buy a house is vital in determining your future. Improving your score should always be on your mind.
When building your credit score, the first step is often clearing up any issues that arise on the report. For example, are any of the negative issues on the report perhaps the wrong person with a same name? This is possible. Another possibility may be money owed that you are unaware of, such as old gym memberships or other obligations that were not canceled properly.
According to the Federal Trade Commission, approximately 20 percent of Americans have some sort of error on their credit reports. The date also states that 5.2 percent of the group found mistakes that, when challenged, significantly raised their scores after the errors were corrected. With these kinds of errors, it’s even more controversial to determine a good credit score to buy a house.
During your credit check, try to get copies from each of the three major bureaus so you know exactly what will be on the lender’s reports and whether or not you have a good credit score to buy a house. While not every lender will seek out every report, it’s best that you know the total numbers so you won’t be in the dark on application day.
Finally, begin to pay down those existing debts to improve your score. If you have multiple cards, consider consolidating your debts into one, but make sure that your borrowing rate is below 30 percent of the total allowed, because this can hurt your debt-to-income ratios.
Since improving your credit score is not an overnight process, it can take some time, so it’s best to start now rather than wait. Pay off those debts and avoid any new debts if you are serious about buying a home, and focus on improving your score so you’ll know you have a good credit score to buy a house.
AdvisoryHQ (AHQ) Disclaimer: Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info. Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.