For many people, buying a home is the most expensive investment they’ll ever make. Preparing for the investment can take a bit of time and preparation. Spending time preparing for a home purchase can save money, so it’s worth trying.
One essential part of preparing to buy a home is understanding what happens to your credit score. Lenders use your credit information, specifically your credit score, to determine if you qualify for a home loan and how much they can lend you. Additionally, your credit score — whether you have poor credit or excellent credit — can affect your interest rate (which, in turn, affects your monthly payment).
Before you begin applying for a home loan, make sure you find the right mortgage rate for you. Credible can compare multiple vendors and provide you with personalized rates within just minutes — and it doesn’t impact your credit.
This is the average credit score you need to buy a home
The score required to qualify for a mortgage loan varies by loan type, location and lender — but some scoring models will help you estimate the minimum score you need to get a loan.
You can also use Credible’s free tool to see what kind of mortgage you can afford as you shop for homes.
To qualify for a Federal Housing Administration (FHA) home loan, you need a minimum credit score of 500. If your score is between 500 and 579, you’ll need to provide a down payment of at least 10 percent. If your score changes to above 580, you may be able to qualify for an FHA loan with a down payment of 3.5 percent or less.
If you need a jumbo loan (a mortgage for an amount that exceeds conforming loan limits), you’ll need an excellent credit score. Additionally, if you want to apply for a private loan (not FHA), the lender will likely require that you have a higher score. You should have a credit score of at least 680 before you apply for a jumbo loan and a score of 650 or higher to qualify for conforming loans not insured by the FHA.
Common credit information factors that impact your credit score:
- Credit age
- Credit utilization
- Credit history
- Mix of credit
- Amount of debt
- Length of credit history
- New credit (and inquiries)
- Payment history (i.e. paying your bills on time)
Your payment history and credit utilization make up most of your score, so these two areas will have the most considerable impact in helping or hurting your credit.
To secure the best rates, aim for a credit score of 680 or higher, no matter what type of loan you seek (a personal loan, home loan, auto loan or…