How Good Does My Credit Score Have to be to Purchase a Home?

How Good Does My Credit Score Have to be to Purchase a Home? (Source: pixabay.com - used as royalty free image)

Millennials represent the largest group of potential homebuyers in the marketplace today, but many are reluctant to get started out of the simple fear that they won’t qualify for a mortgage.

In fact, young people are so stymied by the belief that they’ll be rejected from the homebuying process that many don’t even try in the first place, according to a recent study from the Wharton School of Business at the University of Pennsylvania.

Here’s the rub: Many of these millennials are actually disqualifying themselves! In reality, the bar for entry for securing a mortgage loan may actually much lower than a lot of young Americans suspect.

As Ellie Mae Vice President Jonas Moe explains: “You don't need a 750 FICO Score and a 20% down payment to buy.”

Millennials are a unique generation; they came of age in a singularly volatile economic landscape and face a barrage of student loans and debt all but unprecedented in American history. It’s easy to see why so many see the barrier to access as being higher for themselves and their peers than it was for their parents and grandparents.

But the numbers tell a different story; in reality, you don’t need a perfect credit score to secure a loan. For proof, take a look at this chart from Keeping Current Matters, which looks at closed loans per Ellie Mae:

 FICO scores and mortgage loan approvals

As you can see, more than 50% of all approved loans came from FICO scores below 750, let alone the 780 that many potential home buyers believe they need to qualify for a mortgage.

And the good news doesn’t stop there! Millennials also don’t need to quake with fear at the thought of a 15-20% down payment; in fact, as recently as 2014, one in five borrowers put down less than 10%, with many paying as little as 3 to 5% out of pocket. Interest rates, meanwhile, continue to sit at historic lows. Right now, rates hover at around 3.5%, less than a third of what homebuyers faced in the 1980s.

So don’t count yourself out, millennials! No matter what you’ve heard, the dream of homeownership is still very much within your reach. When you’re ready to start on the path to owning a home, be sure to keep the Real Group team in mind! We’ll work with you to make sure that you feel confident taking each and every step of the journey. Drop us a line today!

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