What credit score do I need to buy a $250,000 house?

What Credit Score Do I Need to Buy a $250,000 House? (A Real-Person Perspective)

So, you’re dreaming of owning a $250,000 house? That’s awesome! I’m right there with you. It’s a big, exciting, and sometimes intimidating goal. And one of the first questions that pops up is, “What credit score do I actually need?”

You’ll hear a lot of people say 620. That’s often touted as the minimum credit score needed for a conventional mortgage. Technically, they’re right. But let me be honest, 620 gives me the heebie-jeebies. It feels like walking a tightrope. Sure, you might get approved, but it’s going to be a stressful process, and you’ll likely be stuck with a higher interest rate. Who wants that?!

Imagine this: You finally find your dream home, go through the nerve-wracking process of applying for a mortgage, and then… BAM! Denied, or offered a loan with an interest rate that makes you want to cry. No thanks! I’d much rather aim higher and breathe a little easier.

My personal goal is a credit score of at least 700, ideally higher. Why? Because a higher credit score unlocks better interest rates. According to FICO, a person with a 620 credit score borrowing $250,000 on a 30-year fixed-rate mortgage might get an interest rate around 7.2% (as of October 2023 – rates fluctuate!). Someone with a 760 score, however, might snag a rate closer to 6.3%. That seemingly small difference can translate to tens of thousands of dollars in savings over the life of the loan. For a $250,000 loan, that could mean a difference in monthly payments of over $100! Who wouldn’t want an extra $100 a month in their pocket?

Also, a higher credit score gives you more negotiating power. You’ll be in a stronger position to shop around for the best mortgage terms and feel confident that you’ll be approved. It removes so much stress from the home-buying process. Trust me, buying a house is already stressful enough!

Don’t get me wrong, I understand that achieving a high credit score isn’t a walk in the park. Life happens. Unexpected expenses, medical bills, even a missed payment here or there can impact your credit. But knowing the benefits of a strong credit score motivates me to keep working on mine. I’m diligently paying my bills on time, keeping my credit utilization low (under 30%), and regularly checking my credit report for any errors.

So, while 620 might technically get your foot in the door, aiming for a credit score of 700 or higher is, in my opinion, the smart move when aiming for a $250,000 house. It sets you up for better interest rates, a smoother approval process, and ultimately, more financial peace of mind. And that, my friend, is priceless.