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If you’re thinking about buying a house right now, you’re probably pondering a long list of questions. Should you wait to see if mortgage rates decrease? How much should you contribute to a down payment? What should you budget for your closing costs? These are all important considerations, but there’s one question that should come before any of these: What’s your credit score?
Read on to understand how lenders look at credit scores in the homebuying process, and whether 750 is a good enough score to secure a mortgage and buy a house.
What credit score do I need to buy a house?
Your credit score is the foundation of your profile as a borrower. It offers a simple look at how risky you are as a borrower, based on your past financial behaviors. The higher your credit score is, the lower your risk level appears to a lender. Conventional loans typically require a minimum credit score of 620, while some loans — FHA loans in particular — will consider lower scores.
If your credit score is 750, you’re in a slightly better position than the typical first-time homebuyer: 2023 data from Fannie Mae shows that the average credit score for a first-time homebuyer is 746.
Credit scores are kind of like grades in high school, though: It’s better to be better than average. Sure, some Cs might get you into college, but a report card full of As might get you a scholarship. If you have a 750 credit score, you fall somewhere between “very good” (for lenders who use FICO scores) and “good” among lenders who use the VantageScore 4.0 model. There are some nuances between those two credit scoring models, but if you have a 750, the lesson is simple: You’re in good shape, with a bit of room for improvement.
What types of loans can I get with a 750 credit score?
With a 750 credit score, you’re in the running for pretty much every kind of home loan. FHA loans, VA loans and USDA loans all have much lower minimum credit score requirements, and conventional loans have a minimum credit score requirement of 620. In fact, you could even qualify for a jumbo loan, which exceeds traditional maximum limits and typically requires a minimum score of 700.
Your solid credit score isn’t the only piece of the puzzle, though. Lenders will also put other aspects of your finances under the microscope, including your income, your debt load, and how they relate to each other — also known as your debt-to-income ratio or DTI. In most cases, they will not want it to exceed 43 percent. This means that your total monthly debt — including mortgage costs, student loan and car payments, credit card bills, etc. — should be less than 43 percent of your monthly income.
How does a 750 credit score impact how much house I can afford?
How much you can afford to spend on a house depends a lot on how low of a mortgage rate you can qualify for. Your credit score has a direct impact on your interest rate, which has a direct impact on how much you will need to spend each month.
With a 750 credit score, you’re in position to get some of the most competitive rates that lenders can offer (as long as you meet their other underwriting criteria). However, 750 may not be quite high enough to get the absolute best deal. Consider this difference in monthly payments, based on FICO’s estimates for borrowing $300,000:
|750 FICO Score
|760+ FICO Score
While a difference of $45 per month might not sound like much, it can be enough to push you past the 43 percent DTI limit. For example, if you earn $80,000 per year, that means your monthly income is around $6,666. Let’s say you have a car payment of $500, a student loan payment of $300 and a minimum credit card bill of $30. That portion of your debt adds up to $830.
Now, consider that 43 percent debt-to-income rule. Based on your monthly income, you cannot afford to spend more than $2,866 on all your fixed bills. However, your current debt, plus a mortgage payment with that 7.214 percent rate, would come out to $2,869 — just barely past the threshold. A slightly higher credit score would get you just below the threshold instead.
How can I improve my credit score?
A 750 credit score puts you in solid shape, but before you buy a home, it might be worth taking a bit of time to boost your score even higher. Here are three tips that can help:
- Make payments on time: Your credit score is a reflection of whether you have held up your end of the bargain to make timely payments on your other loans. Setting a reminder or signing up for autopay can help make sure you never miss a due date.
- Improve your credit utilization ratio: Your credit utilization ratio represents how much you owe on your credit cards vs. your total credit limit. For example, if you have a credit limit of $20,00 and you have an outstanding balance of $15,000, your utilization ratio is 75 percent — much higher than the 30 percent or lower that lenders prefer. The most obvious route to improving your ratio is to pay off your bills. However, you can also consider requesting a credit limit increase. That’s a smart move if your credit limit is low and your income has gone up since you opened the card.
- Don’t open new accounts – and don’t close any, either: Besides working to help your credit score, you can also take steps to avoid harming it. Lenders like to see a long credit history, so it makes sense to keep that old card you opened in college open, even if you aren’t using it. Don’t open any new lines of credit either, though, especially within a year of applying for a mortgage.
You may be in control of your credit score, but the housing market is out of your hands. Whether you start looking for a home with a 750 credit score or take time to boost it even higher, it’s smart to find a local real estate agent to help you navigate the market. Agents are licensed professionals who can help you find a home that meets your needs — and your budget.
Yes, a 750 credit score puts you in a good position to apply for a mortgage (assuming you meet the lenders’ other criteria as well). Conventional, FHA, VA, USDA and even jumbo home loans all have minimum credit score requirements that are well below 750.
Lately, high mortgage rates and high home prices have been creating major affordability challenges for buyers. Many house-hunters have been waiting on the sidelines to see if either rates or prices decrease, but trying to time the market is a tricky business. In the end, life goes on no matter what mortgage rates are — if now is the right time for your life circumstances, and you can afford the purchase, go ahead and buy. If rates decrease eventually, you can always refinance.
To figure out how much you can afford to spend on a home, start with the 28/36 rule: Most experts recommend spending no more than 28 percent of your monthly income on your housing payments, and no more than 36 percent on your total debt, including housing costs. Bankrate’s home-affordability calculator can also help you crunch the numbers.