Get a Good Credit Score When Buying a Home
Are you wondering what a good credit score for buying a house is?
A healthy credit score is a vital factor when buying a house. A good credit score can mean the difference between getting the most favorable interest rate and terms from a mortgage lender.
With a better score, you will pay less for the home you purchased. Potential buyers need to remember that the actual cost of owning a home is directly tied to the mortgage terms you receive.
Many prospective home buyers will ask a real estate agent or mortgage broker what is a good credit score to buy a house. No doubt, it’s a great question to ask.
With some effort, you may be able to pull up your scores into the category of what’s considered a good score.
I’ve already covered what credit score is needed to buy a house, so I thought it would help provide some knowledge to those closer to having top-notch scores.
Buying a house with bad credit is challenging, and you’ll likely be discouraged by the mortgage terms the lender will give you.
Let’s look at some of the essential things to know, so you can turn buying a house with a good credit score into a reality.
What is a Credit Score?
You may be wondering what your credit score is and the steps to take to improve it. Part of understanding how to get a mortgage is knowledge of credit scoring.
A credit score is a numerical rating that reflects your credit risk. It typically falls between 300 and 850, indicating the likelihood you can repay your debts on time.
Your credit score is a number that reflects your creditworthiness. It is based on information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history.
Higher credit scores indicate that you are a responsible borrower and may make borrowing more accessible in the future.
Credit score ranges vary based on the credit scoring model used but are generally similar to the following:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Some credit scores may vary depending on the scoring model used and may differ based on which credit bureau provides the report used for the data.
Some may only report to two credit bureaus, one or none. Additionally, lenders may use a combined credit score from the three nationwide credit bureaus – Equifax, Experian, and TransUnion.
Good Credit Score vs. Needed Credit Score to Buy a House
A good credit score to buy a house differs significantly from the needed score. When you have a minimum score to purchase a home, the mortgage lender won’t give you the best loan terms.
On the other hand, when you have good credit scoring, the odds improve that the lender will provide the best terms. Over the life of the loan, a lower interest rate can mean saving thousands of dollars.
The best mortgage rate comes to those who put in the time and effort to improve their scores. So it is worth shooting for an ideal credit score vs. what’s needed to buy a home.
Is 700 a Good Credit Score to Buy a House?
Yes. A credit score of 700 or above would be considered good. With many lenders, you will get favorable credit terms with this score.
Increasing your score to 740 will improve your chances of ensuring the best terms.
How to Check Your Current Credit Score
Understanding where your credit scores stand is essential to determine how much improvement will be needed.
Your credit report includes a detailed summary of your credit history. It includes your personal information and lists details on your past and current credit accounts.
A credit report documents the times you or a lender has requested it and any time your accounts have been passed onto a collection agency.
Financial issues that are part of public records, such as bankruptcies and foreclosures, are also included in your credit report.
You can get a free copy of your credit report from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion – once each year at AnnualCreditReport.com.
If you have been denied credit or your credit report is inaccurate, you can see it within 60 days.
It is a good idea to request a credit report from the three credit reporting agencies and review them carefully, as each may contain inconsistent information or inaccuracies.
If you spot a mistake, request a dispute form from the agency within 30 days of receiving your report. It is crucial to get credit reporting errors corrected as they can have a significant adverse effect on your credit scores.
What Factors Will Impact a Credit Score?
There are quite a few factors that will influence your credit scores.
- Your history of paying bills on time
- Your current debts left unpaid
- The type of loan accounts you have and how many
- What amount of time have your loan accounts been open
- How much available credit are you using
- Are there new applications for credit
- Have you had a foreclosure, bankruptcy, or debt sent to a collection agency, and how long ago did it occur?
How to Improve Your Credit Score to Buy a House?
Understanding what a good credit score to buy a house is can be significant, so you have something to strive to achieve. Even if you are not purchasing a home immediately, improving your credit score makes sense.
They impact so many aspects of our daily financial lives. Let’s look at how you can boost your credit scores to get closer to purchasing a home with the best mortgage terms.
Don’t Miss Any Loan Payments For Better Credit Scores
It is probably common sense that you wouldn’t want to pay bills late.
A long history of on-time payments can help build your credit score, which is a critical factor in obtaining loans and other financial products.
To avoid hurting your credit score, you need to make sure you don’t miss loan or credit card payments by more than 29 days—payments that are at least 30 days late can be reported to the credit bureaus and downgrade your credit scores.
If you can’t afford to pay your bills on time, set up automatic payments to ensure you always pay the minimum due. However, be careful not to overdraft your bank account, which could lead to accrued interest and penalties.
Build Up From Your Current Credit to Improve Your Scoring
Opening new accounts that aren’t reported to the major credit bureaus is a bad idea because it will hurt your credit score.
You can’t start laying down a good track record as a borrower until there are accounts in your name, so having at least several open and active credit accounts can be beneficial.
Consider taking out a credit-builder loan or secured card to improve your credit score. Getting added as an authorized user on someone else’s credit card as a family member can also help build your credit quickly.
When starting with no credit, getting a credit report from a bureau is crucial in establishing credit.
Reduce Revolving Account Balances
High balances on revolving credit accounts can lead to a high credit utilization rate, hurting your scores.
Credit cards and lines of credit can help you improve your credit score. Credit utilization ratios, which measure how much of a card’s available credit you’re using, are typically in the low single digits for those with high scores.
Get Current With Any Past Due Accounts
Having all your accounts current can improve your credit score if you’re behind on your bills.
Of course, it also prevents late payments from being added to your credit history.
Talking to a credit counselor may be a good option if you have trouble paying your credit card bills. The counselor may be able to help negotiate lower payments and interest rates and get the card issuers to bring your accounts current.
You might also want to sign up with Credit Karma, a credit improvement service we will discuss shortly.
Try Not to Apply for New Credit Accounts to Improve Credit Scores
Opening multiple credit accounts can hurt your credit score. While it will be essential to establish credit, you don’t want to go overboard.
Opening new accounts can harm your credit scores, but inquiries can add up and have a compounding effect.
Inquiries and the average age of your accounts are minor scoring factors, but you still want to be cautious about how many applications you submit.
Credit scoring models ignore rate shopping inquiries if they occur within a couple of weeks. So don’t be concerned when applying for a home mortgage and having your credit scores checked.
Sign Up For Credit Karma to Get a Good Credit Score
Credit Karma is one of the best services for improving your credit scores. One of the best things about Credit Karma is that it’s free. You will need to tolerate seeing advertisements.
Credit Karma provides you with the financial information to make smart credit decisions. For example, many people misunderstand what bills to pay or how getting a new credit card could impact their scores.
Credit Karma will answer each potential credit decision, so there is no second guessing if you make the right decision.
A credit score of 700-plus will usually land a borrower a lower interest rate, and while mortgage industry experts say you can still qualify for certain loans with a score under 680, the 700s are where you can expect to pay the lowest rates.
What Credit Score is Needed For The Best Mortgage Rate?
A credit score of 700-plus will usually result in a lower interest rate, and while mortgage industry experts say you can still qualify for certain loans with a score under 680, the 700s are where you can expect to pay the lowest rates.
- A credit score of more than 740 is considered excellent credit.
- Credit scores between 700 and 738 are good
- Scores between 630 and 639 are known as fair credit.
- Credit scores lower than 639 are considered poor credit.
A good credit score to buy a house may differ among lenders, so always strive to improve.
Home Mortgage Loan Types Reviewed
When you have a good credit score to buy a house, you’ll have some options for the financing you choose. Let’s look at some of the standard methods for financing a home.
FHA Loan
FHA loans are federally insured, making them less risky for lenders and more straightforward to qualify for than conventional mortgages.
Down payments and low-equity refinance are available from the bank. This allows you to refinance up to 97.75% of your home’s value.
Some borrowers who may not be eligible for a traditional mortgage because of their credit score or income may qualify for an FHA loan. This type of loan can help homeowners with lower credit scores or who spend a significant portion of their income on housing.
If you want to take out an FHA loan that requires a down payment of just 3.5%, you’ll need a credit score of 580 or higher. However, your credit score won’t matter as much if you want to qualify for an FHA loan that requires a down payment of 10% or more.
Investigating an FHA 203k loan will be worthwhile if you purchase a fixer-upper home. This renovation loan allows you to roll the costs of improvements into one mortgage.
It can be beneficial when buying a house sold as-is.
Conventional Loans
Conventional mortgages are home loans that follow the standards set by Fannie Mae and Freddie Mac. Any government agency does not insure them.
Conventional loans are typically best for those with good or excellent credit, as these loans require a higher credit score than government-insured loans.
Conventional financing offers the most competitive interest rates and flexible repayment periods, with typical mortgage lengths from 10-30 years.
VA Loans
A VA loan can be a smart financial move if you meet the eligibility requirements. These loans don’t require a down payment and are available to borrowers with lower credit scores.
The challenging part is meeting the loans eligibility requirements:
- You must be a member or veteran of the U.S. Military or a member or veteran of the U.S. Military Reserves or National Guard to participate in this program.
- Spouses who have lost a husband or wife due to active duty or a service-related disability can also apply for one of these loans.
The VA loan allows you to borrow up to 100% of the home’s purchase price without paying for private mortgage insurance. PMI can be expensive, so it is a significant perk.
A one-time funding fee is associated with VA loans, which varies depending on your down payment, the type of loan, how many times you’ve chosen a VA loan, and the type of military service you logged.
If you don’t make a down payment and borrow your first VA loan, your funding fee will be 2.3% of the loan amount.
However, if you are a veteran with a disability rating from the Veterans Affairs Department, you don’t have to pay the funding fee when buying a home.
The VA has no minimum credit requirement. However, individual lenders can set a minimum credit score to purchase a home.
Final Thoughts on What is a Good Credit Score For Buying a House
A good credit score is essential for buying a house. There are many ways to improve your credit score, so research and take action!
It is crucial to use credit responsibly. A good credit history and credit score can make or break your ability to purchase a home when you want to. Getting a good credit score to buy a house is a great goal.
Managing your credit report is a great way to stay in control of your finances and improve your chances of achieving your goals.
About the author: Bill Gassett, a nationally recognized leader in his field, provided the above Real Estate information on what is a good credit score for buying a house. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
