What Credit Score Do You Need To Buy A House?

Your credit score is an important consideration when you buy a house because it shows your lender how you manage debt. The credit score you’ll need to buy a house depends in large part on the type of mortgage you’re applying for. Typically speaking, though, you’ll have a lower interest rate the higher your credit score.

As you begin the home buying process, be aware of the credit score you’ll need to buy a house, which loan types are best for certain credit ranges, and ways to improve your credit score.

How Do Lenders Determine Your Credit Score?

Before we get into the credit score you’ll need to qualify for a mortgage, it’s important to understand how lenders determine your credit score. After all, your FICO^® Score is reported by three credit reporting agencies – Equifax^®, Experian™ and TransUnion^®.

These national bureaus collect information from lenders, banks and other companies. The bureaus then compile that information to formulate your credit score based on the following factors:

• Your payment history
• How you use your available credit
• The length of your credit history
• New credit accounts
• The different types of credit you use

Lenders Use Your Median Score

If you’re applying for a loan on your own, lenders get your credit score from each of the three major credit rating agencies and use the middle or median score to qualify you for a home loan. If there are two or more borrowers on a mortgage loan, the lowest median score among them is generally considered the qualifying credit score.

The exception to this rule is a conventional conforming mortgage, where multiple borrowers are backed by Fannie Mae. In that case, the lender averages the median score of the borrowers on the loan.

Credit Score Evaluation Example

Let’s consider an example using a lender that allows averages. If you have a median score of 580 and your co-borrower on the loan has a 720 credit score, the average credit score would be 650. Because the minimum qualifying score for conventional loans is 620, this can be the difference in qualifying for a mortgage.

Keep in mind that for the purposes of your interest rate and mortgage insurance, the lowest median score is the one that gets reported – which could raise your rate slightly.

There are also certain situations where Fannie Mae would still use the lowest middle score for qualification. Speak with a Home Loan Expert if you have questions about the credit score you’ll need to qualify for a mortgage.

What Is A Good Credit Score To Buy A House?

A good credit score to buy a home is one that helps you secure the best mortgage rate and loan conditions for the mortgage you’re applying for. You’ll typically need a credit score of 620 to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with a score as low as 500.

Keep in mind that whether you’ll qualify for a specific loan type doesn’t solely depend on your credit score. Factors such as your debt-to-income ratio (DTI), loan-to-value (LTV) ratio and income will also be taken into consideration.