Your bank will use your credit score to determine whether or not they consider you to be a good risk based on how well you have historically repaid debts. A high credit score rating is one of the most valuable personal financial assets you can have, so it stands to reason that the higher it is, the better it is. If your score is higher than 600, you will have a good chance of getting approved for a home loan when buying a house.
This could be different depending on the financial institution that you use. Each major bank utilises both the credit bureau score as well as their own internal risk evaluation criteria. These criteria consider a number of factors that are unique to a particular home loan application, such as the size of the loan in comparison to the the value of the property.
What if you don’t have a high enough credit score when buying a house?
If you have poor credit or no credit at all, getting a home loan when buying a house may be extremely unlikely unless you know someone who is willing to help you out financially. It might be easier for you to get approved for the loan if you have a co-signer with better credit than you do. You also have the choice of having “a friend, or more likely a family member, purchase the home,” adding your name to the title, and subsequently attempting to refinance the property into your name once your credit scores have improved to an acceptable level.
If you are considered to be a very high risk borrower, there is a good chance that your application for a home loan will be denied because the lenders will question your ability to repay the money. On the other hand, having a good to excellent credit score will have the opposite effect, possibly allowing you to negotiate preferential terms and conditions.
Interest Rates and Your Credit Score
In general, your interest rate will be better if you have a higher credit score, and the opposite is also true. This can have a major impact on both the amount of your monthly payment as well as the total amount of interest that you will pay over the course of the loan’s lifetime.
Summary
Even though there is no “official” minimum credit score, having a higher score will make it easier to secure a loan, and the terms will likely be better as well. for more information on credit scores, see our article here
References
NerdWallet: What Credit Score Do You Need to Buy a House? – NerdWallet. (n.d.). www.nerdwallet.com. Retrieved October 20, 2022, from https://www.nerdwallet.com/article/mortgages/whats-exact-credit-score-need-buy-home
Investopedia: Is My Credit Score Good Enough for a Mortgage? (2021, November 2). www.investopedia.com. Retrieved October 20, 2022, from https://www.investopedia.com/articles/personal-finance/081115/my-credit-score-good-enough-mortgage.asp
“Why Is a Credit Scorecard Important When Applying for a Home Loan?” Ooba, 4 Aug. 2021, www.ooba.co.za/faq/what-is-credit-score.
