It’s time to take an important step in the game of life.
It’s time to buy a house.
If you’re like 99% of South Africans (it’s a made-up figure, but you get the idea), you’ll need a home loan to turn your dreams of owning a home or property into a reality.
This means there’s just one thing standing between you and homeownership—your credit score.
Here’s everything you need to know about your credit score to buy a house.
Let’s jump in.
Credit score to buy a house in South Africa
In the credit score range between 0 to 999, which is popular in South Africa, a credit score of roughly 640 is the minimum credit score required to buy a house using a home loan. Lower scores may qualify, but it will be more challenging to get approved, and buyers with scores below 640 may need to seek out lenders with more relaxed lending policies or criteria.
Lending policies vary by lender, which means, some creditors may be more strict while others may approve scores as low as 610.
Credit score to qualify for a home loan:
|Credit score range
|Likelihood of qualifying for a home loan
|781 – 850
|650 – 669
|634 – 649
|610 – 633
|Very low (very challenging)
Let’s take a second to go over the basics. Then, we’ll go deeper on requirements, minimum scores, good scores, and what you can do to buy a house with a low credit score.
What is a Credit Score?
A credit score is a number (or score) representing someone’s creditworthiness (how safe it is to lend money to them) based on an analysis of the person’s past credit behaviour.
Lenders, like banks or retail stores, use credit scores to evaluate whether it is safe to lend money to their customers and reduce their chances of losing money from individuals who do not (or cannot) repay their debt.
Got it? Good. Now, back to what you’ll need to do to buy a house.
What must your credit score be to buy a house?
To buy a house, your credit score typically needs to be considered “fair” or better by lenders, which often means a score of at least 634.
Keep in mind that credit score requirements vary depending on the lender and the type of loan you’re applying for.
(This means there’s hope for people with lower credit scores.)
Generally, lenders prefer higher scores (670 and above) and tend to approve loans with better interest rates and loan terms to borrowers in this range.
While it’s possible to secure a home loan with a lower score, it’ll definitely be more challenging, and it’ll come with higher interest rates.
It may be necessary to explore specific loan programs or options designed for lower credit scores.
What is the minimum credit score to buy a house in South Africa?
The minimum credit score to qualify for a home loan to buy a house in South Africa typically starts at around 640. Yet, lower scores, near 610, may still have a chance of home loan approval, depending on the lender’s policies.
For the best chance of getting approved, you’ll ideally want a score higher than this. Something closer to 640 is a stronger minimum.
(The credit score requirements to buy a car in South Africa are similar).
What is a good credit score to buy a house in South Africa?
A good credit score to buy a house in South Africa is generally considered to be above 670, which is a higher score that puts you in an excellent position for home loan approval (with more favourable terms).
As always, the higher, the better. It’ll boost your likelihood of securing more favourable loan terms and lower interest rates.
But what if your score sucks? How are you supposed to buy a house then?
Let’s go over a couple of workarounds.
📖 Bonus reading: How to check if you are ‘blacklisted’ in South Africa
How to buy a house with a low credit score
Let’s be real: Not everyone has a perfect credit score, but that doesn’t mean owning a home is out of reach.
Ways to buy a house with a low credit score:
- Consider a larger down payment
- Explore government-backed loans
- Look for bad credit home loans
- Add a co-signer
Consider a larger down payment
A substantial down payment may compensate for your low credit score and decrease the lender’s perceived risk (which may improve your chances of getting approved.)
It reduces what’s known as the loan-to-value ratio, which could potentially qualify you for better loan terms and interest rates.
Explore government-backed loans
Some government programs, like those offered by South Africa’s National Housing Finance Corporation (NHFC), have more relaxed credit score requirements.
A more laid-back lending criteria could make government-backed loans a viable option for those with lower scores.
Bear in mind these loans are only available for applicants who meet a specific qualifying criteria.
NHFC’s government-backed loans eligibility criteria:
- Applicants must fall within the ‘affordable/gap’ market segment (earning between R3,501 to R22,000 per month)
- Must be a first-time homebuyer
- Must be South African citizens or legal permanent residents
- The maximum price of a property that can be financed is determined based on the applicant’s affordability
- Plus, the subsidy amount can vary
Look for bad credit home loans
Specialized lenders offer loans tailored for applicants with poor credit history.
These “bad credit home loans” may have higher interest rates and fees, reflecting the lender’s higher risk. Read the fine print and make sure you understand the long-term financial implications before proceeding with a high-risk loan like this.
(For most buyers, we’d recommend finding another way to finance your home or even waiting.)
Add a co-signer
Adding a co-signer with a good credit score can strengthen your loan application and get the loan approved.
In this case, the co-signer’s creditworthiness could persuade lenders to offer you a mortgage because it provides them with additional security.
It’s a big ask, though. As a co-signer, your family member or friend would be equally responsible for repaying the home loan if you default.
(It’s a risky thing to do for someone else.)
And lastly, there’s the option of working on your credit score and waiting a while before buying a home.
You might think it’s better to buy now because property prices tend to go up. This is common. You may be afraid that buying will be more expensive in a year or two, but that’s not always the case.
Remember, better credit score = lower interest rates. And interest adds up.
Reducing your interest by improving your score could save hundreds of thousands of Rands.
Here are a few tips to get you started.
How to improve your credit score before buying a house
To improve your credit score before buying a house in South Africa, do the following.
How to improve your credit score:
- Review your credit report
- Reduce debt
- Avoid new credit applications
- Maintain a mix of credit
- Stay consistent
Check out our post: How to build a good credit score in South Africa for seven steps that anyone can follow to improve their credit score in South Africa.
Now, here is an explanation of each of the tips we mentioned earlier.
Review your credit report: Correct any errors that might be pulling your score down.
Reduce debt: Aim to lower your overall debt burden before applying for a home loan.
Avoid new credit applications: Each application can potentially hurt your score.
Maintain a mix of credit: This shows you can manage different types of credit responsibly.
Stay consistent: Consistency is key. Regular, on-time payments are your best friend in credit score improvement.
If you’re really struggling to keep up with all your debt, then that should be the starting point. Catch up first. Then, maintain good credit behaviour to improve your score.
For anyone in this boat, debt counselling be a good option. Here are two articles that’ll tell you more:
- What is debt counselling?
- Advantages and disadvantages of debt counselling
- How debt review clients can get a loan under debt review
Your credit score is a critical factor in buying a house in South Africa.
It influences your ability to secure a home loan and the terms of the loan itself.
- Minimum = 640
- Good = 670+
There are ways to buy a house despite a low credit score. Some of which are risky. Plus, there’s always the option of waiting and working on your credit score first.
Want to learn more? Keep reading on Everycent.