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Curious about the credit score needed to buy a house? The real question is, what credit score do you need to get a good rate on a mortgage? After all, your credit score is a top factor that impacts interest rates you’re offered when you apply for a home loan.
But if you’re in the market to buy a home, you’re probably spending enough time debating square footage, local schools, how much you really want that open floorplan, etc. Credit scores are likely the last thing you want to think about.
So let’s make this easy, shall we?
First, take a look at the following elements that are considered when building a credit score:
The FICO score, developed by the Fair Isaac Corporation and a popular method used by lenders, weights those factors as follows:
The better your performance in each area, the higher your credit score may be. Learn more about credit score ranges and how to improve your credit score.
FICO ranks credit scores from a low of 300 to a high of 850 and within those rankings, the average American’s credit score stands at 703.
Besides qualifying for a mortgage, your credit score can affect the interest rate you’ll pay on the loan.
The higher your score, the better interest rate you will likely receive from a lender.
When we looked at FICO’s site, as of June 19, 2020, the calculations for a $216,000, 30-year, fixed-rate mortgage worked out as follows:
The difference: $2,328 a year in your monthly mortgage payments.
Typically, mortgage lenders consider you to be less risky if your credit score is higher. Conversely, a lower credit score may represent more risk. And you could end up paying more in the long run because lenders may offer higher interest rates for loans they perceive as riskier.
Some lenders have a baseline score at which they reject applications.
When it comes to conventional fixed-rate mortgages, the simple answer is with a score of 620 or better, you may be more likely to qualify, while a score of 700 or better may get you better terms.
Ultimately, the higher your credit score, the better chance you have of securing a lower interest rate. According to myFICO.com, here’s what this looks like based on FICO scores for a 30-year, $400,000 fixed-rate mortgage:
FICO Score: 760-850
FICO Score: 700 - 759
FICO Score: 680 - 699
FICO Score: 660 - 679
FICO Score: 640 - 659
FICO Score: 620 - 639
Rates as of September 17, 2019
There are a handful of financial to-dos you’ll want to cross off if you’re buying a home. However, when it comes to credit specifically, here are five tips to consider:
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.