What Credit Score Do You Need To Buy A House?
Buying a house is one of the most exciting things you’ll do in your life – but there’s no doubt it can also be quite stressful. It takes time to shop around and make sure you’ve found the right house for your lifestyle and requirements. And when you do find the perfect house, it can be extremely disappointing if you’re not approved for a loan from the banks.
To help, you should always talk to a lender first, and do your research to find out if you have a good credit score. This is the first thing that any lender will assess before approving you for a loan. Here’s what you’ll need to know about how good your credit score needs to be.
What is a credit score?
A credit score is a number between 350 and 800 and is used by most lenders to determine your trustworthiness in repaying a financial loan. In general, the higher your credit score, the better you’re going to look to any financial institution from which you seek to lend. Credit scores are determined by your bank, set by several contributing factors: the number of open accounts, amounts owed and debts repaid, whether your bills are paid on time. Essentially, any financial decision you’ve made that could affect your ability to be given money by a bank is measured and put forth in that three-digit number that makes up your credit score.
Why does it factor in when you buy a house?
If you’re buying a house, unless you are doing so outright, it is almost inevitable that you are going to have to borrow money from a bank, or some other financial institution. This institution will gauge your reliability of repayment of that loan based on a number of factors: age and place of current residence, ability to repay other bills on time, your employment history, the current number of available assets, and, yes, your credit score.
If this number is between 600 and 750, you will more likely be approved for your loan, depending on the size of the loan in question. The bank essentially hedges its bets on your ability to repay your mortgage in full based on how high your credit score is, as it is an indicator of whether or not you are a ‘good borrower.
What about interest rates?
One of the things that usually kill any financial decision people make with regards to large purchases requiring lots of capital investment is the interest rates. A high interest rate could very well break you, financially, as one sudden life circumstance and you find yourself unable to make payments.
Your interest rate is calculated again by risk assessing you as a borrower. For example, if you are looking to buy car insurance, an insurer will assess your driving history. Any accidents in which you were at fault would affect your interest rates for the insurance.
Darren Robertson of Northern Virginia Home Pro explains that it’s the same concept as buying houses. “A financial impropriety on your part could severely impact your interest rate – a good credit will get you market-leading (lower) interest rates than, say, someone else with a bad credit score.”
What about if my credit score is low?
If your credit score is low, it is critically important you rebuild it before you consider buying a house, as any bank with any sense is going to turn you down. So, what are some things you can do to rebuild your credit score?
Well, the most important thing you can do to rebuild your credit score is to pay off any existing debts you may have. That will bump it up, for sure. Otherwise, you can demonstrate to your bank that you have a clear path toward repayment by showing proof of employment and general financial stability. This indication of general financial stability will save your bacon when the time comes for you to buy a house and the bank checks your credit score.
Whether you’re worried or not about your credit score affecting your ability to borrow money for a house, it’s essential you consult with your bank, or a financial advisor, before you make any formal arrangements for a mortgage.
When there’s a necessity surrounding the home purchase, and you have a failing credit score, you can always turn to bad credit loan lenders near you.
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