What credit score do I need to buy a house?
Your credit score signals your creditworthiness, and when you’re buying a house, your score can mean a lot, determining the mortgage, the interest rate and the discounts you’re offered.
- For a conventional home loan, it’s important to have a credit score of at least 620. Anything lower may deliver a higher interest rate. Conventional loans have lots of other qualifications, following Fannie Mae and Freddie Mac guidelines.
- FHA loans are more flexible about credit scores and other qualifications. Insured by the Federal Housing Administration, you'll need a minimum credit score of 580 and a down payment as low as 3.5%.
- VA loans are available to members of the military and their spouses. Insured by the Department of Veterans Affairs, many lenders require a score between 580 and 620 and often don’t require a down payment.
- USDA loans are backed by the Department of Agriculture. Like VA loans, a down payment isn’t always required, although most lenders require a FICO score of 640 or higher.
- Jumbo loans are typically larger than conventional loans and often look for a credit score of at least 700 as well as a large down payment.
How do I increase my credit score before buying a house?
If you have a low credit score and are thinking about a mortgage, start working on your credit history.
- Pay bills on time- One of the biggest factors in your credit score is your on-time payment history. Lenders want proof that you can make payments as promised and handle your debts responsibly. Your payment history accounts for 35% of your FICO score.
- Maintain low credit utilization- Most experts recommend using no more than 30% of your available credit, across all your cards. Your credit utilization is another big factor credit bureaus use to determine your score.
- Track your credit reports- Check your credit reports regularly. If there are errors, file a dispute with the credit bureau and your card issuer.
- Pay off debts- If you're carrying debt, pay down your credit card balances. Mortgage lenders will review your debt-to-income ratio to determine if you can afford a home loan.
- Keep credit open- When you keep older credit cards open and active, you’re building a strong credit history (as well as lowering your credit utilization).
Increase your credit score with Bright.
What credit score do I need to buy a $300,000 house?
The house you can afford, and the size of your mortgage, depends on several factors, from your income to your debt to the size of your down payment, as well as your credit score. It’s different for everyone.
The best place to start is with pre-qualifying. Talk to lenders about your income, credit history and your potential down payment. They’ll review your financials and, in most circumstances, offer pre-qualifications for loan, detailing the size of the loan they’ll offer and the repayment terms.
Once you’ve pre-qualified, you’ll have a more informed view of the house you can afford. It’s a smart first step before you start home shopping. As always, compare terms and interest rates.
Be mindful that pre-qualifying isn’t the same as a loan offer. The terms might change when you formally apply for the loan, mostly depending on your finances and the home you want to buy.
Here are some other factors lenders will consider, in addition to your credit score
- Debt to income ratio- Your debt to income ratio is a key metric, showing how much of your income goes toward paying off debts. Having a low DTI makes you a more attractive, lower risk to lenders.
- Income- Lenders will ask for proof of your income, to ensure you make enough to cover your monthly payments.
- Down payment- A larger down payment may help you qualify for lower interest rates and help avoid private mortgage insurance, a policy that covers the lender if you default.
- Savings and Investments- Most lenders expect you to have enough set aside to cover at least two months of mortgage payments.
- Employment history- In addition to proof of income, many lenders look for a stable work history, proving you’re likely to keep the job you currently have when you apply for a loan.
How can Bright help?
Bright can pay off your credit cards faster, Powered by MoneyScience™, Bright learns about your finances and gets you debt-free faster, making automatic payments that build a positive payment history and lower your credit utilization ratio.
Bright can also build your savings automatically. Bright adds to your savings in regular increments, following your goals, so you start earning interest sooner. Set up a “Down payment fund,” and Bright can target your savings for your home buying goal.
With Bright Credit Builder, you can get an easy credit boost, with more on-time payments made for you automatically and lower credit utilization.
If you don't have it yet, download the Bright app from the App Store or Google Play. Connect your bank and your cards, set a few goals and let Bright get to work.
The Beginners’ Guide to Credit Scores
Financial Planning for a first time home buyer