What Credit Score Do You Really Need to Buy a Home?

If a number pops into your head right away, there is a good chance it is not quite right. I often see this happen, so you are not alone in that. For years, many buyers have guessed the score lenders want is higher than it really is and that guess has kept some good buyers sitting on the sidelines. Personally, I signed up for a free Credit Karma account to get a better idea of where my score stands.

Here is what is worth knowing, in plain terms:

Most people are guessing too high.

Since 2015, Fannie Mae has tracked what consumers think lenders require and that same pattern has been steady. People consistently overestimate the minimum credit score needed to qualify for a mortgage. As recently as 2023, the average guess was 652.

The long standing benchmark for loans backed by Fannie Mae and Freddie Mac has been lower, at 620, and even that is not a hard rule for every mortgage they back today.

The difference can matter. A renter who assumes a score is too low may never take the next step to find out for sure. Guessing wrong can cost a family a home they might have been able to buy.

The rules for scoring are changing:

For decades, the mortgage industry relied on one set of scores, Classic FICO. The Federal Housing Finance Agency has now approved new credit score models, such as FICO 10T and VantageScore 4.0, in a push to promote competition, make credit scoring more inclusive, and help more Americans become homeowners.

A different model can mean a different number for the same person. VantageScore says its model can score about 33 million adults that the Classic FICO model cannot. So…. the score you saw in an app last month may not be the score your lender pulls.

The models may be new, but the basics have not changed.

What still helps, no matter which model is used

Pay on time. Keep balances low and trending down. Avoid opening or closing accounts right before a loan. Build steady, consistent habits, and let time work in your favor. I always recommend to clients to not buy furniture or car while getting prepared to buy a house.

Those habits help your profile under the old model and the new ones alike.

The bottom line:

Do not make a homebuying decision from a chart, an app, or a friend's advice. The rules shifting and so many misconceptions are out there, it is never too early to talk to a professional loan officer about credit, budgeting, and what it would take to qualify for a mortgage. If you need a recommendation for a Preferred Lender, please let me know.

You may be closer to owning a home than you think.

If you are wondering where you stand here in the North Austin suburbs, let us talk. I would love to help you get a straight answer and a plan.

Barbara Colvin, Broker Associate

Integrity Realty & Investment Services Team, Powered by LPT Realty

Call or text 512 589 4139 | barbara@iristx.com