What credit rating do you need to buy a house?


It's a good thing to keep your credit rating healthy even when you don't have a particular goal in mind. But when you want to buy a house, it's critical.

People with good credit scores can receive benefits from lower down payments to lower interest rates. You also need a minimum baseline score to be considered a good risk to get any home loans at all.

»RELATED: Here's how to determine how much house you can afford

How much credit do you need to buy a house? To start with, you need a number somewhere between one that will force realtors and lenders to stifle their laughter, and one where the bank president personally comes out to offer you a loan.

The credit score that's a numerical representation will range anywhere from 300-850. FICO scores are the most frequently used, and are based on amounts owed (30 percent), new credit (10 percent), length of credit history (15 percent), payment history (35 percent) and credit mix (10 percent).

Like most grades, the higher your score, the better. "Good credit is like gold when obtaining a mortgage," Denise Supplee, a Pennsylvania agent, told Trulia.

Typically, the best interest rates start when your score reaches 740 or more.

"A higher credit score should net you a lower mortgage rate," says Lee Gimpel, co-creator of The Good Credit Game, told Trulia. "That lower rate, even if it's only 1 or 2 percent lower, can mean saving thousands of dollars per year."

The Federal Housing Administration, or FHA,requires only a credit score of at least 500 to buy a home with an FHA loan. But even there, you need a minimum of 580 to make the minimum down payment of 3.5 percent instead of 10 percent, and many lenders require a score of 620 to 640 to qualify.

»RELATED: Here's what an ‘average’ house looks like in Georgia

To help you figure your best (and worst) scenario, MyFico.com offers an online calculator you can use to determine how much money you'd save on a typical home loan with an increasingly better credit rating. The rates shown are averages based on thousands of financial lenders, conducted daily by Informa Research Services, Inc.

Two examples that assume a Georgia residency and a 30-year-fixed loan:

$265,000 loan principal (Georgia's average home price)

For a FICO score of 620-639, you'd rate 5.859 percent APR, which translates to a $1,565 monthly payment and $298,352 interest paid over the life of the loan.

If you jumped just to the next bracket, 640-659, you'd rate a 5.315 percent APR, a $1,474 monthly payment and a savings of $32,702 in life-of-the loan interest.

At a credit rating of 660-679, 4.886 percent APR, $1,404 monthly payment and a savings of $57,850 in life-of-the loan interest.

At a credit rating of 680-699, 4.673 APR, $1,370 monthly payment and a savings of $70,118 in life-of-the-loan interest.

At a credit rating of 700-759, 4.496 APR, $1,342 monthly payment and a savings of $80,201 in life-of-the-loan interest.

At the highest credit rating of 760-850, 4.275 APR, $1,308 monthly payment and a savings of $92,644 in life-of-the-loan interest.

$150,000 loan principal

For a FICO score of 620-639, you'd rate 5.859 percent APR, which translates to an $886 monthly payment and $168,878 interest paid over the life of the loan.

If you jumped just to the next bracket, 640-659, you'd rate a 5.315 percent APR, an $834 monthly payment and a savings of $18,511 in life-of-the loan interest.

At a credit rating of 660-679, 4.886 percent APR, $795 monthly payment and a savings of $32,745 in life-of-the loan interest.

At a credit rating of 680-699, 4.673 APR, $776 monthly payment and a savings of $39,690 in life-of-the-loan interest.

At a credit rating of 700-759, 4.496 APR, $760 monthly payment and a savings of $45,397 in life-of-the-loan interest.

At the highest credit rating of 760-850, 4.275 APR, $740 monthly payment and a savings of $52,440 in life-of-the-loan interest.


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