What Credit Score Do You Need to Buy a House?
Thinking about buying a home? It's important to understand what credit score is needed to buy a house and how your credit score impacts your interest rates; a lower rate can save you a significant amount of money over the life of your loan.
What is a good credit score to buy a house?
First, let’s remember that a credit score is a three-digit value that represents a person’s creditworthiness, which accounts for their credit history and credit behavior. The most common credit score used by lenders is the FICO® Score, which ranges from 300-850 for the base score. When credit scores are considered for purchasing a home, a FICO Score above 620 is generally required by lenders to approve a conventional mortgage. A score of 670 or above is considered a good credit score, as it indicates to lenders that you are more likely to pay bills on time. If you have a credit score between 740-799, a “very good” score like yours typically means you qualify for the best loan terms and interest rates.
However, if you have a credit score lower than 620, you are not out of the game yet. While a lower score typically indicates higher interest rates, mortgage lenders will also consider your income (which isn't factored into your FICO® Score), employment history, debt-to-income ratio, the size of your mortgage, and your down payment.
Different types of loans and the credit score needed
Understanding the various loan types available for home buying and the minimum credit scores required for each will help you determine your best option.
- Conventional Conforming Loan: Minimum FICO® Score Required — 620-660
A conventional mortgage is a common loan that is eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac, which makes these loans more affordable to borrowers. Any loan backed by these two agencies is a conforming loan, meaning the loan amount falls within their maximum limits. Loans that don't fall within these limits are non-conforming and are considered "Jumbo" loans. - Conventional Non-Conforming Jumbo Loan: Minimum FICO® Score Required — None (though most lenders require 700 or higher)
A jumbo loan is financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA). This means they are not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac (the two government agencies referred to in #1 above). Therefore, this is a non-conforming loan. - FHA Loan: Minimum FICO® Score Required — 500-579 (with 10% down) or 580 (with 3.5% down)
A Federal Housing Administration (FHA) loan is for borrowers with limited down payment ability and whose credit history may be higher risk. An FHA loan offers two down payment structures: 3.5% down payment for scores of 580 and above and 10% down payment for scores lower than 580. - USDA Loan: Minimum FICO® Score Required — None (though most lenders require 640)
A USDA Loan is a mortgage backed by the U.S. Department of Agriculture for low-to-moderate income borrowers purchasing in rural areas. They do not require a down payment, but they do have income limits and property location requirements. - VA Loan: Minimum FICO® Score Required — None (though most lenders require 620)
A VA loan is issued by private lenders and partially guaranteed by the Department of Veterans Affairs (VA) and can be a $0 down mortgage for veterans with full entitlement. Eligible borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage.
How to prepare your credit score before buying a house
If your credit score is less than ideal, don’t panic. There are a few things you can do to secure the home you want to live in. In the short term, you can:
- Pay your bills on time
- Pay down high credit card balances
- Correct any errors on your credit report
- Avoid new credit applications
- Don’t close old credit lines
In the long term, you can build a consistent on-time payment history to strengthen your credit. Also maintain low credit utilization ratios, and try to stay away from new lines of credit, like loans or credit cards.
So before deciding to purchase a home, check your FICO Score and consider whether you might be on the cusp of getting a better interest rate. You can use the myFICO Loan Savings Calculator to calculate potential savings based on your personal financial situation.
