What Credit Score Do You Need To Buy A House?

There are many misconceptions about the credit score needed to buy a house. Recently, it was reported that 24% of renters believe they need a 780-800 credit score to be considered for a mortgage. The reality is they are misinformed!

Only 25% of the 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)

Randy Hopper, Senior Vice President of Mortgage Lending for Navy Federal Credit Union said,

“Just because you have a low credit score doesn’t mean you can’t purchase a home. There are a lot of options out there for consumers with low FICO® scores,”

There are many programs available with low or no credit score requirement. The Federal Housing Administration (FHA) now requires a minimum FICO® score of 580 if you want to qualify for 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, none of them are above 700!

It is true that the average FICO® score for all closed loans in January was 726, but there are plenty of people taking advantage of the low credit score requirements. Here is the average FICO® Score of closed FHA Loans since April 2012 according to Ellie Mae:As you can see, that number has been dropping for the last seven years. As a matter of fact, the average FHA Purchase FICO® Score reported in January 2019 was 675!

One of the challenges is that Americans are unsure about their credit score. They just assume that it is too low to qualify and do not double check. Credit.com confirmed that only 57% of individuals sought out their credit score at least once last year.

FICO® reported,

“Since October 2009, the average year-over-year FICO® Score has steadily and consistently increased, from a low of 686 in 2009 to the latest high of 704 as of 2018.”

Here is the increase in the average US FICO® Score over the same period of time as the graph earlier.

Bottom Line

At least 84% of Americans have a score that would allow them to buy a house. If you are unsure what your score is or would like to improve your score in order to become a homeowner, sit down with a real estate professional that can help you to set a path to reach your dream!

Want To Increase Your Family's Wealth? Here's How!

Everyone should realize that unless you are living somewhere rent-free, you are paying a mortgage – either yours or your landlord’s. Buying your own home provides you with a form of ‘forced savings’ that allows you to use your monthly housing costs to increase your family’s wealth.

Every month that you pay your mortgage, you are paying off a portion of the debt that you took on to purchase your home. Therefore, you own a little bit more of your home every month in the form of home equity. As your home’s value increases, you also gain home equity.

Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists. They are asked to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).

The latest data from their Q1 2019 Survey revealed that home prices are expected to round out the year 4.3% higher than they were in January. For the next 5 years, home values will appreciate by an average of 3.21% a year.

This is great news for homeowners!

For example, let’s assume a young couple purchased and closed on a $250,000 home in January of this year. Simply through their home appreciating in value, those homeowners can build their home equity by over $40,000 over the next five years.

Let’s look at the potential equity gained over the same period of time at some higher price points:

In many cases, home equity is a large portion of a family’s overall net worth.

Bottom Line

Whether it’s your first or your fifth, if your plan for this year includes buying a home, meet with a local real estate professional who can help you understand where prices are headed in your area.