For this post, I’m answering 2 very similar questions:
- What’s the minimum credit score needed to buy a home?
- What’s the ideal credit score needed to buy a home? (note: higher isn’t always better)
You’re smart for wondering about your credit score before making the leap into home ownership. It’s because credit is the best representation we have of sound money management. So if your credit score is good, owning a home should be a walk in the park.
What should your credit score be to buy a home?
The minimum credit score needed to buy a house (with a mortgage) is 580. That is with an FHA Loan. An FHA loan is by far the best option available for low score lenders. If your score is below that and you still really, really want to buy a house you’re not necessarily excluded. Visit the Credit Requirements for an FHA loan page to view their exceptions.
Your credit score should be 740. That ideal. Any less than that – you’re paying higher interest than you could have been paying. Anything greater than that – no one cares. Aim for a credit score of 740 at the time you apply for your mortgage.
There are plenty of free ways to discover your credit score. So I suggest you do that long before house hunting. But wait. Not all credit scores are equal. One website may say you have a 670 credit score, another may say 700. I use both Discover and Mint to monitor my score. Right now Discover says 714, Mint says 738. I wish I could just tell you that one credit score is wrong and one is right.
The thing about credit scores is lending authorities can use a variety of formulas. In fact, there are 3 variants of a credit score:
- Experian/Fair Isaac Risk Model
- TransUnion FICO Risk Score 04
- Equifax Beacon 5.0
A lender will usually run all three of these scores. They will likely use an average of all 3 scores.
To know you have the ideal credit score for buying a home, my advice is to make sure your credit is above 740, according to the average of the above three scores. The difficult way to do this is to have a lender run an analysis for you (just please make sure a hard credit pull isn’t done – that will hurt your score by between 5-10 points). Only allow them to run a hard check if you’re ready for a mortgage and you really want to go with that particular lender.
If you have time on your hands, as I do, just make sure your score is above 760, no matter what free credit checking service you use. Planning erases most money problems. But if you’re in a rush to get into a home have lender run a soft pull analysis. Or you can simply use a few online tools as I do to monitor your score. Once your score remains above 740 between all three for a few months, you should be good to go.
You should consider monitoring your credit score the moment you begin saving up for the down payment on the home. This way, you’ll be familiar with it. You’ll have a relationship with your credit score. This is a good idea to do even regardless of whether you’re buying a home soon.
What should your credit score be to buy a home? Your credit score should be at least 580 but should be 740. Having a score of 740 is the cheapest way to get a mortgage, as you won’t need to pay high interest. The only way to get the interest any lower is to buy a house with cash. But that’s generally not a wise idea.