What's a good credit score for buying a home? At least 620

If you borrow money to buy a home, your credit score will likely influence the amount you will end up paying each month to your mortgage lender.

A credit score is a three-digit number that indicates your degree of risk as a borrower. A good credit score is usually greater than 670, depending on the credit score model, which usually means that you can trust you to repay the borrowed money on time. Credit ratings range from 300 to 850.

When you apply for a mortgage, lenders evaluate your credit score to determine if they wish to lend you money and how much they will charge in interest if they do so. A higher credit rating will generally give better loan terms than an unfavorable credit rating, which will leave you with a more affordable monthly mortgage payment.

What's a good credit score for buying a home?

A good credit rating for buying a home varies depending on the type of mortgage you are applying for, but you usually need a credit rating of at least 500.

In order to qualify for a conventional mortgage – a loan secured by a private lender, and not by a US government agency – you must obtain a credit score of at least 620, according to the network of lenders. The higher your credit score, the more likely you are to get a lower interest rate. Conventional mortgages require a deposit of at least 5% of the purchase price. However, any down payment below 20% also requires private mortgage insurance.

If your credit score is lower, a government loan may be more appropriate. The Federal Housing Administration (FHA) loan allows buyers with a credit score of 580 or greater to account for only 3.5% of the purchase price of a principal residence. Buyers whose credit score is between 500 and 579 can also qualify for an FHA loan, but the minimum down payment is 10%.

Mortgage lenders also look at your debt-to-income ratio

Your credit rating is not the only factor that lenders consider when applying for a mortgage.

Lenders will also calculate the debt ratio of a potential borrower to determine if they are able to accept another monthly payment. You can find your debt ratio by a simple calculation: Divide all monthly debt payments by gross monthly income and you get a ratio or a percentage (once you have moved the decimal point two positions to the right ).

The lower the percentage, the more you trust lenders, as this indicates that your debts are a smaller part of your income. According to the Bureau of Consumer Financial Protection, a 43% debt-to-income ratio is considered the threshold for qualified mortgages, but smaller lenders and government lenders can make exceptions.

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