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You need a credit score of at least 620 to buy a house with a conventional mortgage.
If you're borrowing money to buy a house, your credit score will likely influence how much you end up paying to your mortgage lender every month.
A credit score is a three-digit number that indicates your riskiness as a borrower. A good credit score is usually anything above 670, depending on the credit-score model, which generally means you can be trusted to repay borrowed money on time. Credit scores range from 300 to 850.
When you apply for a mortgage, lenders will evaluate your credit score to determine whether they want to lend you money at all and how much they'll charge in interest if they do. A higher credit score will usually yield better loan terms than an unfavorable credit score, leaving you with a more affordable monthly mortgage payment.
What is a good credit score to buy a house?
A good credit score to buy a house varies depending on the type of mortgage you're applying for, but generally you need a credit score of at least 500.
In order to qualify for a conventional mortgage - a loan backed by a private lender, not a US government agency - you need a credit score of at least 620, according to the Lenders Network. The higher your credit score, the better chance you have of securing a lower interest rate. Conventional mortgages require a down payment of at least 5% of the purchase price, however, and any down payment below 20% will also require private mortgage insurance.
If you have a lower credit score, a government loan may be more suitable. The Federal Housing Administration (FHA) loan allows buyers with a credit score of 580 or higher to put down just 3.5% of the purchase price of a primary residence. Buyers with a credit score between 500 and 579 may also qualify for an FHA loan, but the minimum down payment is 10%.
Mortgage lenders also look at your debt-to-income ratio
Your credit score isn't the only factor lenders consider when you're applying for a mortgage.
Lenders will also calculate a potential borrower's debt-to-income ratio to determine whether they're suited to take on another monthly payment. You can find your debt-to-income ratio through a simple calculation: Divide all monthly debt payments by gross monthly income and you have a ratio, or percentage (once you move the decimal point two places to the right).
The lower the percentage, the better you look to lenders, because it indicates your debts make up a smaller portion of your earnings. A debt-to-income ratio of 43% is considered the cutoff for a qualified mortgage, according to the Consumer Financial Protection Bureau, but smaller lenders and government lenders may make exceptions.
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