What’s the magic number?
We’ve all asked it. What credit score do I have to have to buy a home?
This is a common question…….but not necessarily the right question. The reason for this, is that there is no one answer. You can qualify for some programs with a credit score as low as 580, but there is also a chance that you could pay a higher rate than if you had a better credit score.
Example: Someone with a 790 credit score might receive an interest rate of 4% while someone applying for the same loan with a credit score of 610 might receive a rate of 4.5%.
However, this doesn’t necessarily mean that you shouldn’t buy a home if you have a lower credit score. It just means that you need to compare whether the cost of buying a home with with the rate that you qualify for is cheaper than the cost of your current rental situation. If it is, then it probably makes sense to buy even if with the lower score.
There’s also the option to speak with your lender about different credit repair options if you would like to try to raise your score in order to receive better lending terms.
Of course things like your debt-to-income ratio will also play a factor in determining if you are a good candidate for a loan. For this reason it’s best to start speaking with a lender at least 6 months before you start your home search.
They will be able to look at your credit history and give you a good roadmap to follow if you need to raise your score or settle outstanding debt.
Overall, if you wan to buy a house and you have a credit score of 580 or higher, there are options available to help you buy your first home.