How Much Credit Do You Need to Buy a House?

You've been building (or tearing down) your credit for most of your adult life. How you've handled your student loans, credit card bills, even rent have all gone into making up that all important credit score number. So, what's the magic number you need to buy a house? Well, the good news is you can buy a home with most credit scores, but you might end up paying more in interest or need to look at some government-backed loan programs. 

First things first, you'll need to know what your credit score is. Request your free credit report from the major credit bureaus. Got it? Ok, here's what those numbers mean--and how they affect your ability to get a mortgage. 

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Excellent: 720 and above

Momma said you'd better shop around (if you have excellent credit). Why? With that credit score you're in high demand as a borrower. Lenders love you! That means you'll qualify for some of the best interest rates and end up paying less over the life of your loan. 

Good: 675-719

With a good credit score, you won't get the best rates, but you also won't get the worst. If you're on the edge of a good and excellent score, you might want to try to raise your credit score before you apply for a loan. 

Fair: 620-674

Lenders start to see you as a risky investment when your score drops down to fair. You'll probably end up paying much higher interest rates than you would if you had a good or excellent score. Proceed with caution, and ask yourself if you really need this money, or if you can wait for better terms. If you're a veteran, this is the lowest range you can be in and still apply for a VA loan

Bad: Below 620

We're not saying it's impossible to get a traditional loan with a bad credit score, but it's definitely difficult--and it comes with a much higher interest rate. If you're in this category and don't want to wait until you can raise your credit score, you might want to look at an FHA loan. These loans generally approve borrowers with lower credit scores. If your credit is below 580, you'll also be required to pay a higher down payment for this loan--10% compared with the 3.5% others with higher interest rates are paying. 

Not satisfied with your credit score? It might make sense to put off getting a loan until you can improve. A more positive way to see it is that your credit score provides as much information for you as it does for potential lenders: If yours is low, and there are no mistakes on your credit report, you may be trying for a loan you can't handle right now. Though we all like to tell ourselves we're turning over a new leaf, and that this time we'll get it right, being realistic is a better choice. Unless you've had a significant change in your financial position, you may handle your loan in the same way you have in the past. Your credit score might be telling you to wait on this loan. Nothing is more stressful than struggling to make payments every month on borrowed money. If you think there's an error on your report, make sure you take the time to correct it so you can get all the benefits of having excellent credit! 

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