What Credit Score Do You Really Need to Buy a Home?

According to Fannie Mae, 90% of buyers don’t actually know what credit score lenders are looking for, or they overestimate the minimum needed.

That means most homebuyers think they need better credit than they actually do. That could make you think buying a home is out of reach for you right now, even if that’s not necessarily true. So, let’s look at what the data really says about credit scores and homebuying.

There’s No One Magic Number

There’s no universal credit score you absolutely have to have when buying a home. And that means there’s more flexibility than most people realize. Check out this graph showing the median credit scores recent buyers had among different home loan types:

Here’s what’s important to realize. The numbers vary, and there’s no one-size-fits-all threshold. And that could open doors you thought were closed for you. The best way to learn more is to talk to a trusted lender.

Why Your Score Still Matters

When you buy a home, lenders use your credit score to get a sense of how reliable you are with money. They want to see if you typically make payments on time, pay back debts, and more.

Your score can impact which loan types you may qualify for, the terms on those loans, and even your mortgage rate. And since mortgage rates are a big factor in how much house you’ll be able to afford, that may make your score feel even more important today.

That still doesn’t mean your credit has to be perfect. Even if your credit score isn’t as high as you would like, you may still be able to get a home loan.

Want to Boost Your Score? Start Here

And if you talk to a lender and decide you want to improve your score (and hopefully your loan type and terms too), here are a few smart moves according to the Federal Reserve Board:

• Pay Your Bills on Time: This is a big one. Lenders want to see you can reliably pay your bills on time. This includes everything from credit cards to utilities and cell phone bills. Consistent, on-time payments show you are a responsible borrower.
• Pay Down Your Debt: When it comes to your available credit amount, the less you are using, the better. Focus on keeping this number as low as possible. That makes you a lower-risk borrower in the eyes of lenders – making them more likely to approve a loan with better terms.
• Review Your Credit Report: Get copies of your credit report and work to correct any errors you find. This can help improve your score.