The Credit Score Myth Thats Holding Would-Be Buyers Back

Would-be homebuyers arent sitting on the sidelines because they dont want to buy. Theyre sitting out because they think they cant. And sometimes, its their credit score thats holding them back.

According to a Bankrate survey, 2 out of every 5 (42%) Americans believe you need excellent credit to qualify for a mortgage. That may be why, when renters are asked why they dont own yet, my credit isnt good enough comes up often.

Maybe youre in the same boat. You look at your score, see its not where you want it to be, and assume buying your first place just isnt realistic right now.

But heres what you need to know.

Even though a lot of people assume you need flawless credit to buy a house, thats not necessarily the case.

You Dont Need Perfect Credit To Buy a Home

So, wheres this myth come from? Part of the confusion stems from the fact that the typical homebuyer today does have a fairly strong credit score. In fact, according to data from the NY Fed, the median credit score for all buyers is 775.

But that doesnt mean you need a score that high to qualify.

Looking at recent homebuyers, a number were able to get a mortgage with scores below that threshold. Data shows 10% of scores were around 660. Which means some were higher than that and some were lower, but the median in that lowest 10th percentile was around that range (see graph below):

So, even if your score isnt as high as you want, that doesnt automatically close the door. FICOexplains there is no universal credit score you absolutely have to have when buying a home:

While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single cutoff score used by all lenders, and there are many additional factors that lenders may use . . .

The best thing to do is to talk to a trusted lender to see whats possible for you. Because a portion of buyers are buying with scores in the 600s and maybe that means you can too.

Bottom Line

Your credit score is important. But that doesnt mean it has to be perfect.

If credit has been the reason youve been waiting to buy a home, it might be time to take another look at your options. If you want help understanding where you stand and what your next step could be, connect with a local lender.

You dont need to have everything figured out to start the conversation.