What Credit Score Is Needed For First-time Home Buyers In 2022?

By Bill Lyons | Published on September 15, 2022

Are you interested in purchasing a new home in the near future? You might be buying a home for the first time, which is why you need to think carefully about your credit score. It is one of the most important factors that will dictate whether you qualify for a home loan. 

Regardless of whether you are interested in an adjustable-rate mortgage or a fixed-rate mortgage, you need to pay close attention to your credit score if you are interested in VA or FHA Loans. Learn more about the credit score needed to buy a house, and contact a professional at Griffin Funding with any questions or concerns you might have.

What’s the minimum credit score for home loans?

So, what credit score is needed for first-time home buyers? If you are interested in the minimum credit score to buy a house, understand that it can vary from place to place. Your credit score is only one factor that lenders are going to consider when they decide not only whether to give you a loan but also what the terms of that loan will be.

Furthermore, the minimum credit score needed to buy a house can vary from state to state.

What is a good credit score to buy a house? In general, you will need a credit score of about 660 if you are interested in buying a house. If you want to be more comfortable with your application, you should try to get a credit score over 700. 

Keep in mind that there are numerous other factors that will play a role in deciding whether your lender will approve you for a home loan.

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What makes up your credit score?

Several factors play a role in your total credit score. First, understand that there are three major credit bureaus that collect credit reports on everyone. They are Equifax, Experian, and Transunion. If you are planning on applying for a home loan, there is a high likelihood that your lender is going to pull your credit report from all three of these major credit bureaus. Then, they will take the middle of the three scores to come up with your final credit score. Even though your credit score may vary by a few points from bureau to bureau, it is probably going to be very similar across all of them.

Now, there are five separate factors that will play a role in your credit score. They include:

1. Your payment history

Your payment history is the most important factor in determining your credit score. It’s responsible for a total of 35% of your overall credit score. If you make all of your payments on time, this category is going to work in your favor. 

There are numerous payments that will play a role in this portion of your credit score. For example, utility payments, rent payments, and cable or internet package payments will affect your credit score as well. Anything that is a regular monthly payment is going to be included in your payment history.

2. The amount of debt you have

The amount of money you owe to other people is also going to impact your credit report. A small amount of debt is not necessarily a bad thing, as it helps you generate a credit history. At the same time, if you have a lot of personal loans, credit card debt, student loans, and car loans, it is going to show up on your credit report. Then, the lender may believe that you do not have the ability to take on a home loan, so they could deny you a home loan. A large amount of debt could reduce your credit score. This is responsible for about 30% of your credit score.

3. Length of your credit history

The length of your credit history will also play a role in your credit report. The longer your credit history is, the higher your credit score will be. Of course, you want to have a long track record with a bunch of on-time payments, but if your credit history is only a year-long, then this portion of your credit score is going to be a bit low. The length of your credit history is responsible for approximately 15% of your credit score.

4. New credit you apply for

If you apply for new credit, it could slightly lower your credit score. Of course, that is something that you have to do if you want to apply for a home loan, but if you apply for a bunch of new lines of credit at the same time, your credit score could drop by a little bit. That is why you should request your lender to only do a soft pull of your credit unless you are ready to finalize your home loan. This is about 10% of your credit score.

5. Types of credit you use

Finally, the types of credit you use will also hold weight in your credit history. Some forms of loans, such as home loans, are generally seen as favorable. On the other hand, if you have a bunch of credit card debt, it could reduce your credit score.

These are the most common factors that will dictate your credit score. You want to maximize your credit score before you apply for a home loan.

What are ways to improve your credit score?

If you are looking to improve your credit score, there are several factors you should consider.

• Pay your bills on time. You need to pay your bills on time if you want to improve your credit score. Remember that this is the most important factor when it comes to your credit score. If you have a long track record of paying your bills on time, your credit score will go up.
• Ask for a copy of your credit report. You should also ask your prospective  lender for a copy of your credit report to make sure that there are no mistakes on it. It is not unusual for people to have mistakes on their credit reports because lots of people have the same name. Try to correct any inaccuracies on your credit report before you apply for a home loan. That way, your credit score isn’t brought down by someone else’s financial misdeeds. You can do this by signing up for a reputatable credit monitoring service like myfico.com.
• Increase your credit limit. Remember that you can always ask for a higher credit limit on your credit cards. This is better than opening up new credit cards because a hard pull on your credit can reduce your credit score. Furthermore, if you use up a lower percentage of your debt because you have a higher amount of available credit, you can increase your credit score.
• Pay your credit card balance in full. You should never carry a balance on your credit card. Remember that credit card debt can be seen as bad debt. Even though there might be some situations where you cannot pay your balance in full every month, you need to prioritize paying off your credit cards. Paying off your credit cards in full every month can increase your credit score while also helping you save a lot of money on interest.

If you keep these points in mind, you should be able to improve your credit score.

What do home loan lenders look for when approving?

Of course, lenders are going to focus on your credit score when they are trying to decide whether to approve your application. However, there are several other factors they will consider as well.

• Your employment history. Your lender wants to know that you have a high likelihood of paying your mortgage on time every month. Therefore, they are going to pay close attention to your employment history. If you can show them a W2 and paystubs from a salaried position, or if you had multiple years of substantial 1099s, you can increase your approval chances.
• Your assets. Your lender also wants to know that you have assets on hand that you can use to pay your mortgage in the event of an emergency. The lender will also be interested in the amount of money you have saved up for a down payment. The more cash you have on hand, the higher your chances of getting approved.
• Your debt to income ratio. The lender will also calculate your debt to income ratio. In general, if your debt to income ratio is less than 36% (including your new mortgage), you have a higher chance of getting approved.

Of course, you should try to be courteous, kind, and responsive to your home lender. This could tip the balance in your favor if the decision comes down to the wire.

Griffin Funding can help first-time home buyers get approved for a home loan

If you are interested in purchasing a home in the near future, Griffin Funding can help you. We have a lot of experience with a wide variety of home loans, including VA Loans and FHA Loans, and we can put you in the best position possible to get approved for your mortgage, even if you are a first-time home buyer. Contact us today to speak to a member of our team.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.