The credit score you need to buy a home

Wednesday, September 27, 2023

Here’s the credit score you need to buy a home — it’s not a perfect 850

Nearly a quarter of Americans under 35 say that bad credit prevents them from owning a home, according to CNBC’s Your Money survey conducted by SurveyMonkey. 

What does it take to buy right now? The minimum score needed can be as low as 500, but it ultimately depends on your lender and what type of mortgage you’re applying for. Generally, to qualify for a conventional loan, the most commonly used mortgage loan, you’ll need a credit score of at least 620, Experian says. Some lenders may require a 660 or better. 

Credit scores range from 300 to 850, and when it comes to owning a home, the higher your score, the better. That’s because borrowers with higher scores generally get a better rate on their mortgage. 

As of September 26, the average mortgage rate among borrowers with scores between 760 and 850 is about 7.2%, according to FICO. Those with scores between 620 and 639 pay 8.8% on average. On a $300,000 mortgage, the homeowner with the lower score would owe about $333 more a month as a result. 

Use CNBC Make It’s mortgage calculator to see how much the rate you pay on your mortgage would cost you over the life of the loan. Returning to the previous example, a homeowner paying a 7.2% interest rate on a 30-year loan would pay about $433,000 in interest by the time they paid off their home. At an 8.8% rate, that number jumps to $553,000. 

Money Tip of the Week: Cash is back, but don’t overdo it

With interest rates hovering near 22-year highs, it’s safe to say cash is back. 

When financial pros refer to cash, they don’t mean bills in your wallet, but rather, types of accounts where you can earn interest on your money with practically no risk of it declining in value. Online banks are offering high-yield savings accounts with interest rates around 5%. Rates on one-year certificates of deposit, a popular cash equivalent, pay more than 5%. 

Cash’s resurgence after years of low rates may have you wondering if you should have some of the green stuff in your portfolio. 

Yes and no, financial pros say. Having a cash position in an account meant for long-term goals, such as retirement, means giving up growth opportunities that come with higher-returning assets, such as stocks, says Amy Arnott, a portfolio strategist at Morningstar Research Services. But that doesn’t mean cash doesn’t have its place in your financial picture, she says. 

“Instead of loading up, people should think about using cash appropriately, for emergency funds and short-term spending goals.”

Which type of account you choose depends on the purpose for the money you’re putting in. 

For an emergency fund, favor vehicles, such as high-yield savings accounts and money market funds, which pay decent interest rates and allow you quick and easy access to your money. 

If you have a short-term goal, such as paying for a wedding or buying a house, consider matching the time frame of your goal to the maturity date on a CD or Treasury bill, each of which return your money to you, plus interest at a locked-in rate, after a set period of time. This could be an especially savvy move if the Federal Reserve stops hiking interest rates or chooses to lower them. 

Next Gen Investing: Ray Dalio says AI will disrupt our lives within a year

Billionaire investor Ray Dalio is sure that artificial intelligence will soon be a “great disruptor” in all of our lives — for both better and worse.

AI will help people make strides in productivity, education, health care and even usher in a three-day workweek, Dalio said last week at Fast Company’s Innovation Festival 2023. On the other hand, it’ll likely “disrupt jobs” and be a cause of “argument” for employees and legislators who support halting or slowing down AI’s evolution, he said.

“All these changes are going to happen in the next five years,” Dalio, founder of hedge fund giant Bridgewater Associates, added. “And when I say [that], I don’t mean five years from now. I mean that you’re going to see [changes] next year … the next year, [even bigger] changes. It’s all going to change very fast.”

A good chunk of corporate executives would agree with this assessment. Forty-nine percent of U.S. CEOs and C-suite executives say their current workforce’s skills won’t be relevant by 2025, according to a survey from online education platform edX published last week.

In the same survey, executives said they’re already trying to hire AI-savvy employees, with 87% citing that effort as a struggle.

Basically, if you’re an American worker, AI might be a little scary, but also a serious opportunity. 

Just about everyone, from entrepreneurs and freelancers to full-time office workers, could stand to benefit from learning more about AI, says Susan Gonzales, founder and CEO of nonprofit AIandYou.

Whether you’re excited, curious or flat-out scared, she says “now would be the time to increase your knowledge.”

Want to earn more and land your dream job?

Join the free CNBC Make It: Your Money virtual event on Oct. 17 at 1 p.m. ET to learn how to level up your interview and negotiating skills, build your ideal career, boost your income and grow your wealth. Register for free today.

Worth the Money: $25 eye mask

I hate sleep masks. So uncomfortable, and they never hold their position on your face overnight. Except, that is, the Deep Rest Eye Mask from Nidra ($25), which I bought very begrudgingly … before using it rigorously during my summer travels. When I realized I’d accidentally left it on an airplane, I was shocked to feel a genuine pang of sadness. You know I’ll buy a replacement before my next road trip or red-eye flight.

— Cameron Albert-Deitch, Success Editor

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