An essential part of preparing to buy a new home is understanding your credit score. The credit score is one of the most important numbers when it comes to your financial life. Lenders use your credit information to determine your creditworthiness and ability to repay loans. While everyone understands the importance of having a “good” credit score to secure a mortgage but may not know what score is “good” and what credit score you need to buy a house.
What is a credit score?
Your credit score is a three-digit number between 300 and 850 that represents your credit risk. Credit scores are based on your credit history, including payment history, amount of debt, and the length of your credit history. Each credit bureau uses their own calculation model to determine your credit score, so you may have a slightly different score for each bureau. In general, the higher your credit score, the more likely you’re able to repay a loan. Credit scores have a big influence on the interest rate you receive on loans, so you can potentially save thousands of dollars with a higher credit score.
What’s a ‘good’ credit score?
Traditionally, a credit score of 670 or above is considered ‘good.’ Here’s a general breakdown:
- 579 and below: Very Poor
- 580 to 669: Fair
- 670 to 739 Good
- 740 to 799: Very Good
- 800 and above: Excellent
Here’s a quick guide to understanding credit scores.
What’s the minimum credit score needed to get a mortgage?
Each loan type and lender have their own minimum credit score requirement so check with your individual lender for specifics, however, here are some benchmarks you can use to start planning:
- Conventional loans: these are the loans you’re probably thinking about when you think about mortgages. Unlike FHA or VA loans, these follow standards set by Fannie Mae and Freddie Mac and are not insured by the government. Most lenders require a minimum 620-credit score to qualify for a loan.
- FHA loans: FHA loans are common for first-time homebuyers. These loans are administered through the Federal Housing Administration and backed by the government, though you can apply for this loan type through a traditional lender. Depending on the amount of your down payment, you may be able to secure a FHA loan with a 500 minimum credit score requirement with a 10% down payment or a 580 credit score with a 3.5% down payment.
- VA loans: VA loans are backed by the U.S. Department of Veterans Affairs but are issued by private lenders, like banks and mortgage companies. Traditionally, there is no minimum credit score requirement, however most lenders require at least a 620-credit score.
Your credit score requirement will depend on your financing so we highly recommend checking with your lender to determine the minimum credit score you need to qualify for a loan. It’s possible to buy a home with “bad credit” but since you can get a lower interest rate with a higher credit score, it’s worth taking the time to improve your credit before applying for a mortgage. Don’t let your credit score keep you from your dream home! Read our blog post on some simple ways to improve your credit score.
We’re excited to work with you to find your dream home. Whether you’re looking in Oregon, Washington, or Idaho, our team can help you move into a home that’s just right for you at any stage in life. Contact us today.