You Don't Need a Perfect Credit Score to Buy Real Estate
When you apply for a mortgage, your credit score is one of the most important factors.
If you have poor credit you might not qualify for a loan. If you have excellent credit you will probably get a lower interest rate and save a lot of money over the life of the loan.
But how high of a credit score do you need to get the lowest rate possible?
FICO credit scores range from 300 to 850 with most lenders giving out their best rates to borrowers with those 720 to 740+ scores. But it depends on a few other things.
Credit Score Requirements Vary Between Lenders
First, every lender will have their own process and value different credit scores according to their own systems.
Some may give out their lowest rates to borrowers with a 720 credit score. Some might set the threshold at 740. You might find credit unions or smaller banks who give preferential treatment to those with a 760, it just totally depends.
But in general, you probably won't find much of a difference when you get into the 760 to 850 range.
A borrower with an 850 score is likely to get the same rate as someone with an 800 or even 750.
But again, it depends on the lender.
This also applies to minimum credit scores needed to qualify for a mortgage so it's worth avoiding credit mistakes whenever possible.
Income and Employment History
Next, your credit score isn't all that goes into determining your interest rate.
Your lender will consider your income to determine how easily you can afford your payment. And your employment history will give them a sense of how stable your job is. If you move between jobs quickly that may be a red flag that affects your ability to qualify.
A perfect credit score is useless if you don't have the income to support the loan you are trying to get.
Proof of Funds
Your lender will likely require a down payment. They want to make sure you have your own money in the deal so that you are less likely to just walk away and stop making payments.
But just having a down payment in the bank is not enough.
Most lenders will want to see that your funds have been "seasoned". Meaning they can confidently say the money is indeed yours and you acquired it legally.
If they didn't have regulations around how you acquired these funds you could simply take out another loan from a family member or borrow other money to make your down payment which defeats the purpose of making sure you have skin in the game.
Make sure you have your down payment documented in a way such that bank statements or other means can easily convince your lender that these funds are clean and that they have nothing to worry about.
Very few individuals have perfect 850 credit scores.
To maintain a score like that, your credit has to be flawless. Lots of accounts, long credit histories, perfect payment history, no collections or marks, and certainly a super low credit utilization percentage.
If you actually use your credit, take out loans, or start accepting hard pulls, your perfect score will drop quickly.
Fortunately, we don't need perfect credit scores to buy real estate and if anything as we discussed above, there are more important factors that should occupy your focus.