What Credit Score Is Needed To Buy A House, And How It Affects Your Mortgage Rates.

a graphic showing the credit score needed to buy a house

Credit scores may seem intimidating at first glance, especially when a first time home buyer finds out that theirs plays a significant role in securing a mortgage loan at an affordable rate. But once you understand how it’s determined and its importance to lenders, you can tackle improving it to reach the credit score needed to buy a house. 

At Hixon, we personalize our approach to lending and guide potential homebuyers with low credit scores or unusual credit histories by providing clear information to explain the relevance of this metric.

Finding And Understanding Your Credit Score

Your credit score is a number from 300-850 that indicates your credit risk based on credit history. Lenders use it to determine how likely a borrower is to make consistent payments on their loan. There are a few models used to score your credit, but the main models were created by The Fair Isaac Corporation, otherwise known as FICO. 

You may have more than one FICO score based on different models. Most financial institutions look at your FICO 8 score, while mortgage lenders request other scores from three main credit bureaus to determine if you have the average credit score needed to buy a house.

If you don’t know your score, request it from one of these companies. You can also obtain a free credit report. Scores are calculated by weighing your payment history, amounts owed, length of credit history, new credit, and types of credit. Scores can change frequently, and signing up for credit score alerts allows you to monitor its progress. 

Ideal Credit Score Needed To Buy A House And Secure An Affordable Mortgage Rate

A low score is between 300 and 570. If you’ve checked your credit score and are stressed by what you saw, don’t be; 11.1% of Americans have low scores, and those with perfect scores (850) tend to be older since it takes time to reach that sweet spot. Most people have to take out loans for school or vehicles, and debts from medical bills or credit cards are far from unusual, so rest assured, there’s no shame in your game if your current score is low.

Lenders set the minimum credit score needed to buy a home at 620. Scores below that indicate a high-risk borrower. If the loan is approved, your monthly payments will be high, and it will take longer to pay off the principal mortgage. In addition, high-risk borrowers may require a larger down payment to ease the lender’s risk. Avoid these penalties by holding off on buying a home until your score is higher. Doing so will can save you money in the long run!

Once you reach a high score (around 750), it’s easier to secure a lower interest rate and down payment. We suggest shooting for this number and using the goal of buying your dream home as motivation. 

Getting The Credit Score Needed To Buy A Home

Don’t worry just yet if you’ve got a low credit score. You can take immediate steps to improve it and reach the credit score needed to buy a home. Simple things like paying your bills on time build a consistent payment history. Pay down credit card balances, ask for a limit increase, and hold off on spending credit or opening new accounts. You should be able to see your efforts reflected in your credit score at around six months. Another great option is to work with a credit repair company that negotiates with creditors for you. These moves affect the most significant percentage of your score in the shortest time!

Contact Hixon To Learn More

Knowledge is power when it comes to credit scores—knowing more about how credit history affects your score and how to change it so that buying a home is more affordable means you’re better equipped to face it. Meet with one of our expert mortgage loan officers to learn about expanded home loan options for home buyers in various circumstances. 

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