What Credit Score Do You Need To Buy A House?

For most people, understanding how your credit score is figured is right up there with me explaining to you how my color television works. I can use it just fine but I can't tell you how it does what it does. Often, the same mystery is surrounding most American's knowledge of what credit score is needed to buy a house. Recently, it was reported by Bank of America that 24% of renters believe they need a 780-800 credit score to be considered for a mortgage. This perceived reality is wrong.

Only 25% of Americans have a FICO score between 740 and 800. Here is the breakdown according to Experian:

• 16% Very Poor (300-579)
• 18% Fair (580-669)
• 21% Good (670-739)
• 25% Very Good (740-799)
• 20% Exceptional (800-850)

I am a huge of fan of improving your credit score. Being able to borrow smartly and affordably is powerful and a better credit score gives you the leverage to do that. I have a previous blog that talks of ways to improve your credit. And I love CreditKarma for learning not only what your score is but on other greats ways to improve it. But there are ways many can buy a home before moving your credit into the upper tier. There is hope.

There are many programs available with low or no credit score requirements. The Federal Housing Administration (FHA) now requires a minimum FICO score of 580 if you want to qualify for a the low down payment advantage. The US Department of Agriculture (USDA) does not set a minimum credit score requirement, but most lenders require a score of at least 640. Veterans Affairs (VA) loans have no credit score requirement.

As you can see, all of those were below 650!

It's true that the average FICO score for all closed loans in January 2019 was 726, but there are plenty of people taking advantage of low credit score requirements. I think the average credit score of closed loans would be lower if more Americans knew they actually qualified and took advantage of some of these low requirement loans. Here is the average FICO score of closed FHA loans since April 2012 according to Ellie Mae: 

It's plain to see that the number has been plummeting for the last seven years. To show this even more the average FHA purchased FICO score in January 2019 was 675!

As I mentioned previously most Americans don't know there credit score and/or they wrongly assume they can't quality for a loan. Credit.com confirmed that only 57% of individuals sought out their credit score at least once last year. 

And if you thought that perhaps the reason FHA related credit scores have dropped was because Americans credit were dropping, think again. Credit scores have improved steadily since 2009.

Bottom Line

At least 84% of Americans have a score that would enable them to buy a home. If you are unsure what your score is or you want to make improvements you need to get started today.

Scott's Advice

Reach out to myself or any other trusted real estate professional and ask for their help. I would steer you towards the free services that help you gauge where you are. Then a plan can be put together to help you move forward...either getting a loan with your existing credit score or with a program to up your score. Action is the key and I can help!

Scott C. Dickinson is a real estate broker that lives in Vancouver, WA but helps others with their real estate needs all over the U.S. He can be reached by email at ScottYourBroker@gmail.com or call him at 360-518-7197. Follow him on Facebook at www.facebook.com/YourBrokerScott or on Instagram at www.instagram.com/YourBrokerScott.