• Can I Buy a House With a FICO Credit Score of 656?

    By Brandon Cornett | © 2013 All rights reserved

    Reader Question: "I am planning to buy my first house this year. I just checked my FICO credit scores, and the lower number was 656. Can I buy a home with a score in this range?"

    In short, yes. Buying a house with a credit score of 656 is certainly possible. Most lenders today require a score of at least 640, so you're above the minimum cutoff point. It will depend on your other qualifications, such as your income and debt levels. If you have no other issues with your finances, then a score of 656 should not stop you from getting a mortgage loan for your purchase.

    But, as always, there are some things to keep in mind here. I'll shape them into bullet points for easy digestion, with some helpful links to related info...

    • Mortgage lenders will use your credit score and other criteria to decide whether or not to give you a loan. That much is obvious. But they'll also use your score to determine what kind of interest rate they'll offer you.
    • You can probably qualify for a mortgage and buy a house with a credit score of 656 without much trouble. But you certainly won't get the best interest rates with a score in that range. These days, home buyers need a higher score to qualify for the best rates -- probably 740 or higher.
    • Depending on who you ask, the average FICO score in this country is somewhere between 670 and 690. So by that definition, you are slightly below the national average. That doesn't mean the lender is going to turn you down. I just wanted to put your numbers into a broader perspective.
    • The credit score needed to buy a house will vary from one lender to another. There is no universal "cut off" above which you can get a loan, and below which you cannot. With that said, many lenders will require a score of 640 or higher. Learn more here
    • In the past, a person with a credit score of 620 or below was considered to be a subprime borrower. Scores in the 620 - 650 range were considered good. A 720 or above was considered excellent. But all of this has changed in the wake of the housing crisis and recession. Basically, all of the categories have been shifted upward.
    • By2011 standards, a credit score of 656 falls into the "good" category. You probably won't qualify for the lenders best rates in this range. But you should still be able to get a loan approval. You'll just have to pay more interest, and you might have to pay mortgage points at closing as well. (Points are a form of prepaid interest. You can pay one point, equal to one percent of the loan amount, to lower the interest rate.)
    • By increasing your credit score even by a few points, you could qualify for a better interest rate and therefore save yourself money in the long run. Here are some tips for boosting your score.

    Get Pre-Approved to Find Out

    Remember, your FICO number is only one piece of a larger picture. The lender will also evaluate your debt-to-income ratio. This is a comparison between your gross monthly income and your monthly debt expenses. The size of your down payment will also influence their decision. The larger the down payment, the more flexible the lender will be with their other requirements.

    Mortgage lenders tend to consider the "whole borrower." This means you could still be approved for a loan with a relatively low score, as long as the lender can find compensating factors to balance it out. For instance, if you have a long history of making mortgage payments on time (from previous homes), it will offset the credit scoring situation. The only way to find out is to appy for a loan, or speak to a lender at least.

    I recommend that you get pre-approved by a lender to see where you stand. If you feel like you're ready to move forward in other regards, and it's just the credit-score question holding you back, mortgage pre-approval would be the logical next step.

    Conclusion and Going Forward

    Hopefully I haven't overwhelmed you with all of this information. Let me sum it all up...

    You can probably find a willing lender without too much trouble. But you won't get the best rates with a score of 656. Lenders will tack on more interest for a score in that range than they did several years ago.

    The definitions of "subprime" ... "good" ... and "excellent" have been shifted upward over the last two or three years. I would say your score puts you into the "good" range, based on 2011 lending standards.

    If you can afford to wait a few months before buying, you can use that time to improve your credit score and thus qualify for a better rate. This could save you a lot of money over the life a loan, so it's my personal recommendation. It really doesn't take that long to improve a FICO score. If you start pay all of your bills on time, and pay down your high-interest debts (such as credit card balances), those two things alone will boost your score over time.

    Hope that helps. Good luck!

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