You may know that your credit score is an important consideration when taking out a new credit card or financing a car loan, but do you know how it can affect your mortgage? Let’s dive in.
What is a credit score?
Your credit score is a three-digit number ranging from 300–850, based on data from your credit report. That data may reflect how much debt you have overall, your payment consistency and other factors. Consequently, lenders use a prospective borrower’s credit score to help assess the likelihood of paying back a loan. Note that while a credit score is an important variable when applying for a mortgage, it’s not the only detail considered (more on that below).
What is the minimum credit score to buy a house?
The credit score necessary to buy a house varies depending on the lender and type of mortgage. For example, most conventional loans require a credit score around 620. If you have a credit score in the 500s, then it may be advantageous to investigate mortgages backed by the Federal Housing Administration (FHA).
Can a higher credit score get me better interest rates?
Although a higher credit score doesn’t guarantee a certain interest rate, higher credit scores can correlate with more competitive interest rates. If you don’t qualify for the interest rate you’d hoped for, you may consider improving your credit score and refinancing for a better interest rate down the road.
How do I check my credit score to buy a house?
You may be interested in checking your credit score before buying a house. However, this can sometimes lead to a hard inquiry on your credit report, which can have a negative impact on your score. With Chase Credit Journey®, however, you can access a free estimate of your credit score using a soft inquiry, which doesn’t affect your score. You can also access a free copy of your credit report each year from the three major credit bureaus: Experian™, Equifax® and TransUnion®.
What you need to apply for a mortgage
Of course, a lender is going to want to see documentation before handing you a giant wad of cash. While some of these documents might vary, the following are common for a mortgage application:
- Credit history: Lenders may review your full credit behavior history in addition to your score.
- Proof of income: Typically, lenders request this in the form of pay stubs, W-2s or tax returns if you’re self-employed.
- Rental history: If you’re a first-time homebuyer, your lender may request to see your rental payment history using your bank statements, for example.
- Assets: Lenders may want to know the value of your assets, which could include your checking and savings accounts, retirement and other investment accounts, and other properties you own.
- Identification: Lenders may want to see your driver’s license, Social Security number or other proof of identification to help confirm your ability to lawfully take out a loan.
- Debt-to-income ratio: Lenders may want to see a low debt-to-income (DTI) ratio, which shows you have more income than liabilities.
It’s clear your credit score is a principal factor to consider when looking for a home. Along with other financial indicators, your credit score helps determine the mortgage amount and terms. The minimum credit score needed to buy a house varies depending on the mortgage. Most conventional loans require a credit score of about 620, but some lenders may offer loans meant for potential borrowers with little to no credit score.