Credit Scores and Home Buying

Posted by on Friday, March 7th, 2008 at 11:06am.

What credit score do you need to buy a home?  The credit score you need largely depends on which home loan you choose. For example, with FHA loans, no credit score is even required.
There is a magic myth that rates change everyday. Actually the only thing that changes is what it costs to get that rate you want. This cost is called discount points, and sometimes it is referred to just as “points.” When a lender reviews applications and assigns a rate for a loan, he or she has to take into account what the buyer’s FICO score is. 
As of December 17, 2007, Fannie Mae (which is the bulk of loans written) introduced new changes to how that’s done.   If your FICO score is less than 620, it’s going to cost 2 discount points (or 2% of your loan) just to get financed. Discount points can either be counted in with closing costs or paid out of a rate premium. For example, if today’s rate is 6%, your lender may charge rate of 7% to get the discount points needed to cover your FICO score adjustment. If your score is 620-639, it will cost 1.75 points. We have a chart that we use to determine the points required for any credit score. Discount points apply to any loan that has less than a 30% down payment. And, all lenders write these conforming loans – not just Home Mortgage Choices.
So, in short, there is not a specific credit score you need to buy a house. Having a higher credit score certainly saves you money in the long run because you will have a lower rate. Your lender should be able to help you improve your credit and find the best combination of loan products for your financial needs.

Leave a Comment