What Is a Good Credit Score to Buy a House? A 2024 Guide

A good credit score to buy a house is typically 720 or higher, which qualifies you for the best mortgage rates and terms on a conventional loan. While it's possible to get a mortgage with a score as low as 500, your credit score directly influences your interest rate and overall loan cost. This article breaks down the minimum scores for each loan type and how to position yourself for success.

How Your Credit Score Affects Your Mortgage Your credit score is a critical factor in the home buying process because it directly impacts your mortgage interest rate. Lenders use your score to assess risk; a higher score signals that you are a responsible borrower, which translates to lower rates. Even a slight difference, such as a 0.25% lower rate, can save you tens of thousands of dollars over the life of a 30-year loan. The primary score used by mortgage lenders is your FICO score, a number ranging from 300 to 850 calculated from data provided by the three major credit bureaus: Experian, Equifax, and TransUnion.

What Credit Score Do You Need for Different Loan Types? The minimum credit score required depends heavily on the mortgage program. Government-backed loans often have more flexible requirements than conventional loans.

It's important to note that while government agencies set minimums, individual lenders may have stricter requirements based on their own risk assessment.

What If You're Buying a Home with a Co-Borrower? When applying for a mortgage with a partner, lenders will calculate a "decision score." This is the lower of the two applicants' middle credit scores. For example, if your scores are 720, 740, 760 and your co-borrower's are 640, 660, 680, the lender will use 660 for qualification. While applying together can help you qualify for a larger loan based on combined income, a low score from one applicant may hurt your terms. In some cases, it may be beneficial to apply with only the higher-scoring borrower, though this means you cannot use the other person's income to qualify.

Beyond Your Credit Score: Other Key Loan Qualifications Your credit score is just one piece of the puzzle. Lenders also thoroughly examine:

• Debt-to-Income Ratio (DTI): This measures your monthly debt payments against your gross monthly income. Most lenders prefer a DTI below 50%, including your new mortgage payment.
• Income and Employment History: You must provide documentation (W-2s, pay stubs) to prove stable income.
• Assets: Lenders need to verify you have sufficient funds for the down payment and closing costs.
• Loan-to-Value Ratio (LTV): This is the loan amount divided by the home's appraised value. A lower LTV (meaning a larger down payment) often results in better loan terms.

How to Improve Your Credit Score Before Buying If your score needs a boost, take these steps several months before applying for a mortgage:

• Check Your Reports: Get free reports from AnnualCreditReport.com and dispute any errors.
• Pay Down Balances: Focus on reducing your credit utilization ratio (the amount of credit you're using compared to your limit), which heavily influences your score.
• Make Payments On Time: Set up automatic payments to avoid missed or late payments, which severely damage your score.
• Avoid New Credit Inquiries: While mortgage shopping within a 45-day window counts as a single inquiry, avoid opening new credit cards or loans.

Conclusion A credit score of 720 or higher is the gold standard for securing the most favorable mortgage terms. However, homeownership is still achievable with lower scores, particularly through FHA, VA, or USDA loans. The most important step is to check your credit reports early, understand where you stand, and take proactive measures to improve your score before you start shopping for a home.