In 2024, the average credit score needed to qualify for a mortgage is approximately 760, which is a significant increase from previous years. This rise reflects tighter lending criteria, especially as mortgage rates have climbed due to inflation and federal rate hikes. A good credit score is more crucial than ever to secure favorable mortgage rates.
Currently, about 90% of U.S. mortgages are approved for borrowers with credit scores of 650 or above, and three-quarters of these loans go to those scoring above 700. However, if you’re aiming for the best interest rates, you’ll likely need a score of 760 or higher. In fact, during a recent refinancing experience, I learned that to get the premium rates, banks are looking for scores over 800, indicating a very stringent lending environment.
For those with scores in the 600s, securing a mortgage can become expensive, often resulting in higher interest rates that significantly impact the total loan cost. It’s become clear that what used to be considered a “good” score of 670 according to FICO standards, is no longer sufficient for favorable loan terms in today’s competitive market.
Taking a deeper dive into mortgage origination data, borrowers with scores of 720 and above are the most common recipients of mortgages, representing about 80% of all mortgage originations. If your score is below 720 but above 620, you might still qualify for certain government-backed loans like those from Fannie Mae and Freddie Mac. The FHA even allows scores as low as 500 if the borrower can make a 10% down payment. However, such loans carry a higher risk of default, especially in an economic downturn.
To avoid potential financial strain, it’s advisable to wait until your credit score surpasses 720 before considering a mortgage. This approach mirrors prudent financial strategies akin to not indulging in a treat like a cookie until the exercise that burns off its calories is completed, or not buying a car unless you earn ten times its cost annually. Although these comparisons might seem extreme, they emphasize the importance of financial caution.
On a broader scale, the average U.S. credit score has reached a new high of 717 by 2024. This improvement indicates a stronger consumer financial standing compared to previous years. If you’re contemplating buying a home or refinancing an existing mortgage, consider this a critical time to boost your credit score above 720 to secure the best possible terms.
The fundamental components influencing your credit score include payment history, amounts owed, length of credit history, new credit inquiries, and types of credit used. To enhance your score, focus on consistent, timely debt payments and maintaining a disciplined approach to borrowing.
For those looking to refinance, the current market offers competitive options. Platforms like the large online lending platforms simplify the process, allowing multiple lenders to compete for your business, which can be particularly advantageous if rates drop further.
Real estate continues to be an attractive route for achieving financial freedom. It offers stability, income potential, and less volatility compared to other investments. Investing wisely in real estate, especially in growing markets, can significantly enhance your financial portfolio.
As the financial landscape evolves, maintaining a high credit score and understanding the market dynamics will be key to making informed, beneficial real estate and mortgage decisions.
