What Credit Score is Needed to Buy a House in 2019?

The minimum credit score needed to purchase a home can be anywhere from 580 to 640 depending on the type of mortgage. Your credit score is one factor that can make or break your house hunting progress since it plays a big role in a lender's decision making process. In addition to dictating the types of loans you’re eligible for, your credit score is also one factor that helps lenders determine your interest rate and other fees related to the loan. This is why it’s important to take a look at your credit score and understand all of the ways it will impact the purchase of your future home.

To help you navigate this process, we’ll walk you through the ideal credit scores for buying a house, how your score impacts the home hunting process and what you can do to improve your credit score and buy a house sooner rather than later.

Like we mentioned, the minimum score you’ll need differs based on the type of mortgage. Below we have a list of the typical minimum scores needed for several types of loans. Your current financial situation, including your credit score, can help when selecting the best mortgage. Keep in mind that these scores may differ based on the specific loan.

There are many ways to increase your score if it’s not high enough to buy a house. Before diving into ways to increase your credit score, let’s first take some time to understand how your credit score can impact home loans.

Your credit score is an indicator of your ability to pay back lenders. A low score raises a red flag and makes you appear risky. Due to this, lenders may ask for a high down payment or give you a high interest rate. A low credit score also narrows the pool of loans you can consider when buying a home.

Meeting the minimum requirements for a loan may not always be the best option. Although you may qualify for a loan, you may get hit with a high interest rate depending on where your score lands.

To get a more tangible picture of the impact of your credit score, use our mortgage calculator to see how drastically things can differ based on increases in your score.

It’s important to understand what dictates a “good” credit score and a “poor” credit score. You have many different credit scores, but VantagePoint and FICO scores are the most common. Both organizations score from 300 to 850 and determine your credit score based on a variety of factors like payment history and recent inquiries. See the range of credit scores below.

A credit score in the 500s will likely narrow your options down to a bad credit loan. These loans normally come with higher interest rates and added fees since lenders see you as a high credit risk.

Keep in mind that lenders may take other factors into account when considering you for a loan. For example, it may help your chances of buying a home if a lender is aware of a past financial hardship you have since recovered from. Lenders also look at factors besides your credit score to determine if they’ll approve you for a loan. Some of these things include:

• Low loan-to-value ratio
• Low debt-to-income (DTI) ratio
• Length of credit history
• Employment history and income

Positive marks in these areas may impact a lender’s decision if your score is low. However, improving your credit score will give you a better chance of securing the loan you want.

An FHA Loan is one option to think about if your score is low or if you have trouble paying high down payments. FHA Loans are backed by the Federal Housing Administration and are less risky for lenders. These loans require lower minimum down payments and credit scores in comparison to other conventional loans, so this may be an option for you if you’re having trouble securing other types of loans. A score between 500 and 580 requires a minimum down payment of at least 10 percent. A score of at least 580 requires a minimum 3.5 percent down payment.

If your credit score isn’t up to par with what is needed to take out a home loan, you should consider taking steps to raise it. This can range from paying off outstanding debts, making a plan to get up to speed with your current debts, or partnering with a credit repair firm to remove any discrepancies on your credit report. Take a look at our tips below to learn how you can quickly improve your credit score.

Getting your debts down is important to help lower your DTI ratio. Although DTI ratio does not directly affect your credit score, it’s a good idea to get it down for two reasons. First, as we’ve mentioned earlier, DTI is a deciding factor for lenders when granting loans. Prospective home buyers should have a low DTI to secure a home loan. Most Qualified Loans have a max DTI of 43 percent. The higher your DTI, the riskier you appear to a lender.

Second, it helps bring down your credit utilization if your debts lie with things like loans or credit cards. A lower credit utilization will help raise your credit score. When applicable, send a pay for delete letter to get negative information removed from your credit report. Otherwise, you’ll have this information on your credit report (and negatively impacting your credit score) for up to seven years.

Late payments also negatively affect your credit score. Make a financial plan to catch up and stay caught up with your payments. Consider different payment strategies like the avalanche method and snowball method to effectively pay off your debt. Depending on your situation, you may also want to consider consolidating your debts or settling some of your debts.

The FTC found in 2012 that one in five credit reports contained errors. This is why you should periodically review your credit report for any erroneous items. These mistakes add up and drastically impact your score if not removed. You have every right to dispute your credit report whenever you find inaccurate information. Learn more about credit repair to see how you can prevent these mistakes from impacting your home hunt and any other major milestone purchases.

Buying a home can be more complicated when you have below average credit. This is why it’s important to work on repairing your credit errors long before it comes time to buy property. It’ll take some time, but it’s doable with the right resources. Follow our tips above to raise your score and open the door to a better home loan. If you’d like some extra help improving your score, learn how Lexington Law can help. We partner with you to help clean up your credit report by verifying the items on the report are accurate and fair. This gives you a better chance at securing the mortgage loan you want. You can also check out our 2019 home buying guide to get everything you need to know to make your house hunt a breeze.

Sources: Investopedia | Veterans United Home Loans | USDA Loans | NerdWallet | Money Crashers | The Lender’s Network