I Want To Buy A House . . . What Credit Score Do I Need To Qualify?

Attaining a perfect credit score of 850 isn't easy; after all, that's like graduating from college with a 4.0! Luckily, all scores of 760 and above are considered to be in the best credit score range. If your credit score is in this category, then CONGRATULATIONS!  You've obviously done some things right to get it there! As a result, lenders really want your business and will therefore offer you their best products at their lowest interest rates. 

Of course, many of us aren't perfect! In that case, a good score is one that falls between 700 and 759, while a fair score is between 650 and 699. A lower score means you’ve had some dings on your credit history. The lower the score, the greater risk you are in the eyes of the lender. You will likely still qualify for a mortgage, but will probably not receive the same rate/cost structure as people with the highest scores.

Most FHA lenders require your score to be 650 or above in order to approve your loan. Credit scores below 650 fall in the "poor" range and indicate that you have had some rough times in your credit history. Depending on the circumstances, you may still qualify for a loan, but it will be more difficult to secure, and you will likely pay more.

So how are credit scores calculated? Here are the main variables that determine your score and to what degree they influence it:

Payment history - 35%: If you've made your debt payments on time and never missed a payment, that's great.  But if you've ever missed payments and your credit report shows 30-day (or more) delinquencies, even one late payment can affect your credit score by as much as 50 to 100 points.

Debt-to-credit utilization (how much you owe) - 30%: This is how much debt you’ve accumulated on your credit card accounts, divided by the credit limit on the sum of your accounts. Ratios above 30% work against you. So if you have a total credit limit of $5,000, you will want to be in debt no more than $1,500 when you apply for a mortgage.

Length of credit history 15%: A longer credit history boosts your score. CreditKarma.com, a credit-monitoring service, found that its members with scores above 750 have an average credit history of 7.5 years.

New credit 10%: Opening several new credit accounts within a short period of time represents greater risk to the mortgage lender, so avoid applying for new credit accounts if you’re about to buy a home. Also, each time you open a new credit account, the average length of your credit history decreases, which negatively affects your credit score.

Types of Credit 10%: Your credit score benefits if you have a combination of different types of credit accounts, such as credit cards, retail store credit cards, installment loans, and a previous mortgage.

Our best advice is to do these three things:

1. Get a copy of your credit report from FreeCreditReport.com. You are entitled to a copy of each of your 3 credit reports once a year for free. One in four people find mistakes on their credit report, so it's always a good idea to review your credit report for free every year and get any mistakes corrected.

2. Get a copy of your credit score. Several credit card companies now offer this service for free, or you can pay a fee to get it from FreeCreditReport.com.

3. Contact us to discuss your housing goals. We can recommend reputable lenders for you to call and get pre-approved for a loan. A lender will ask you all the appropriate questions and then let you know how much you can spend for a new home, how much you will need up front in a down payment and closing costs, and what your monthly payments will be. Then we can start shopping for the perfect home for you and your family.