When you’re getting a mortgage loan for hundreds of thousands of dollars, a small difference in the interest rate can make a big difference in your payments and the total amount you’ll pay over time. Your credit score helps determine the loan terms you qualify for, but what score is needed to buy a home? The credit score to buy a house may vary depending on the kind of mortgage you’re seeking; however, there are some general guidelines that can help you.
What Credit Score Is Needed to Buy a House?
The FICO® Score is the credit scoring model used by most lenders. FICO Scores range from 300 to 850; the range of scores considered “good” starts at 670. A FICO Score of 740 to 799 is considered very good; a score of 800 or more is considered exceptional.
A FICO Score of 700 surpasses most mortgage lenders’ minimum requirements. However, your credit score isn’t the only thing mortgage lenders evaluate, so simply having a 700 credit score won’t necessarily qualify you for a home loan. Because a higher credit score could mean a lower interest rate, improving even a 700 score could save you money.
The Minimum Credit Score Requirements by Mortgage Loan Type
The credit score needed to buy a house may vary depending on the type of mortgage loan you’re seeking. Here are the minimum credit score requirements for different mortgages.
Conventional mortgage loan
Conventional mortgage loans, the most common type of mortgage, are not backed by the federal government and come in two “flavors”: conforming and non-conforming. Conforming conventional loans are limited to a maximum amount. In most parts of the country, the 2021 maximum is $548,250; in designated areas where the cost of housing is higher than the average, the maximum is $822,375. You’ll need a credit score of 620 or more and a debt-to-income ratio below 50% to qualify for a conventional conforming loan.
Non-conforming conventional loans, also called jumbo loans, have higher lending limits than conforming loans. Because they are riskier for lenders than conforming loans, jumbo loans require a higher credit score—generally 680 or above.
Insured by the Federal Housing Administration (FHA), these loans require a minimum 3.5% down payment and a 580 credit score. However, if you can put down 10%, you may qualify for an FHA mortgage with a 500 credit score.
U.S. military service members, former service members, and surviving spouses may be eligible for these low-cost mortgages through the U.S. Department of Veterans Affairs (VA). VA loans don’t need a down payment and usually require a 620 credit score, but it’s possible to qualify with a credit score as low as 580.
The U.S. Department of Agriculture’s Rural Development Guaranteed Housing Loan Program
offers low-interest, zero down payment mortgage loans for low- and moderate-income homebuyers in eligible suburban and rural areas. Most lenders require credit scores of 640 or more for these loans; however, you can sometimes qualify with a lower credit score.
What Kind of Credit Report and Score Do Lenders Use?
Mortgage lenders generally check your FICO Score when reviewing your mortgage application. To get a broad overview of your financial situation, they’ll also pull your credit data from all three consumer credit bureaus (Experian, TransUnion and Equifax).
There are several different versions of the FICO Score credit scoring model; new versions are introduced on a regular basis. The most current version is FICO Score 10, but most mortgage lenders use older credit scoring models. Specifically, mortgage lenders usually review your FICO Score 2 based on Experian data, FICO Score 5 based on Equifax data, and FICO Score 4 based on TransUnion data.
As a result, what the lender sees isn’t the same number you see when you check your credit score. However, it’s similar enough that checking your credit score will give you an indication of where you stand.
What Else Do Mortgage Lenders Consider When Approving a Mortgage Loan?
Your credit score isn’t the only thing lenders consider when you apply for a mortgage. The following factors also affect your eligibility and the interest rate on your loan.
- Down payment: The larger your down payment, the less money you need to borrow, which reduces the lender’s risk. If you apply for a conventional loan and can’t put down at least a 20% down payment, you may have to get private mortgage insurance (PMI), which can add to the loan cost. Conversely, a down payment of more than 20% may lower your interest rate.
- Debt-to-income ratio: This ratio reflects the percentage of your monthly income used to pay debts, such as credit card bills, student loans, or auto loans. If this ratio is too high, lenders may worry that you won’t be able to pay your mortgage. In general, mortgage lenders prefer a DTI of 36% or less, although some are more flexible.
- Recent credit applications: If you’ve recently applied for a lot of new credit, it may indicate that you’re living above your means and will have trouble paying your mortgage. Try to avoid applying for new credit if you plan to apply for a mortgage soon.
- Loan term and loan amount: Larger loans or those with longer terms generally mean higher interest rates, because they’re riskier for lenders. Reducing the loan term (say, by seeking a 15-year loan) or the loan amount (by putting down a bigger down payment) lowers this risk and may qualify you for a lower interest rate.
- Type of mortgage loan: If you’re applying for a loan that’s backed by the federal government, you can generally qualify with lower credit scores than you’d need for a conventional loan. Just keep in mind that government-backed loans may require PMI or other fees that can add to your overall loan costs.
- Your income and savings: Lenders want to see a stable employment history and income. If you started a new job within the past two years or are self-employed with a fluctuating income, it may be more difficult to qualify for a mortgage. Having sufficient cash reserves in savings can sometimes offset a short employment history or uneven income.
What Is the Best Way to Improve Your Credit?
Unless your credit score is already exceptional, taking steps to improve it before applying for a mortgage can help you qualify for lower interest rates. To improve your credit score:
- Check your credit score to see what range you fall into.
- Check your credit report to ensure it’s up to date; dispute any inaccurate information that you find.
- Avoid applying for new credit accounts or loans.
- Don’t close existing credit card accounts, even if you’re not using the cards; doing so can lower your credit score.
- Reduce credit card debt and avoid making large purchases on credit cards.
- Pay your bills on time. If you have any past-due accounts, bring them current.
- Consider signing up for Experian BoostTM, a free service that can boost your credit score by giving you credit for paying your phone, utility, and streaming service bills on time. These payments aren’t normally reported to credit bureaus.
How Can You Check Your Credit and Monitor Your Progress?
To see if your efforts to improve your credit score are working, start monitoring your progress. Experian CreditWorks, a credit monitoring service that gives you monthly access to your free credit report and FICO score, alerts you when your credit score changes; it also includes Experian Boost.
To make sure your credit reports are accurate, get a free copy of your credit report from each of the credit bureaus three to six months prior to applying for a mortgage. This will alert you of any problems that could keep you from qualifying for a mortgage and give you enough time to dispute inaccuracies on your credit report with the relevant credit bureau.
FAQs About Credit Scores to Buy a House
The credit score needed for a $250,000 house varies depending on the type of loan you’re seeking. This loan amount falls within the limits of a conventional, conforming mortgage loan, which requires a minimum credit score of 620. However, if you qualify for an FHA or VA loan, you could get a mortgage with a lower credit score.
Most lenders won’t approve borrowers with a credit score of 620. However, if you’re eligible for an FHA or VA loan, you may qualify with a credit score as low as 580.
In addition to your credit score and credit report, lenders consider your down payment, your debt-to-income ratio, whether you have a stable employment history and the amount of money you have in savings. They use this information to assess whether you have the financial resources to repay the loan.
USDA loans and VA loans are the only mortgage loan types that don’t require a down payment. If you can’t make a big down payment, investigate low down payment loans. FHA loans require a down payment of just 3.5%. HomeReady loans, offered through The Federal National Mortgage Association (Fannie Mae), and Home Possible loans, offered through the Federal Home Loan Mortgage Corporation (Freddie Mac), require a 3% down payment and credit score of 620 for qualifying low-income home buyers.
Check your credit report and dispute any inaccurate information. Bring past-due accounts current and pay all your bills on time. Pay down credit card debt and avoid incurring more. Signing up for Experian Boost can quickly boost your credit score by adding on-time payments for utilities, phone, and streaming services to your credit report.