Strictly speaking, you don’t need a credit score to buy a home. If you pay cash, no one necessarily cares whether you have good credit. However, if – like most aspiring American homeowners – you need financing, then a credit score is a concern.
Your credit score is one of the most important factors lenders consider when applying for a mortgage. Not just to qualify for the loan itself, but for the terms. Generally, the higher your score, the lower the interest rates and the better terms you will qualify for.
So what is a good credit score for buying a home? It depends on the type of mortgage you’re looking for: Federal Housing Administration (FHA) loans, conventional loans, and jumbo loans all vary in the credit score needed to buy a home. Generally speaking, you’ll likely need a credit score of at least 620 – which is classified as a “fair” rating – to qualify with most lenders. If you opt for a Federal Housing Administration (FHA) loan, you may be able to be approved with a credit score as low as 500.
Credit Score Needed to Buy a Home by Mortgage Type
There is no single, specific credit score that will automatically qualify you for a mortgage (although having the maximum score of 850 never hurts). But while they don’t set specific qualifying numbers, lenders do have minimum credit score requirements.
The minimum credit score to qualify for a mortgage depends on the type of loan and the lender.
|FHA Loans||500 (with 10% deposit)
580 (with 3.5% deposit)
- Conventional Loans: Conventional loans are mortgages that are not offered or guaranteed by a US government agency; they are offered by commercial banks and savings and credit associations. Generally, the higher your credit score, the more likely you are to qualify for a mortgage with these lenders. Many will accept a credit score as low as 620, but may have other requirements for these borrowers, such as higher income or a larger down payment.
- FHA Loans: The Federal Housing Administration guarantees loans for borrowers with lower credit scores and low down payments, especially first-time home buyers. You may qualify for an FHA loan with a credit score of 500 to 579 with a 10% down payment, or with a 3.5% down payment if your score is 580 or higher.
- USDA Loans: The United States Department of Agriculture supports the USDA loan program for low-to-moderate income borrowers buying a home in a rural area. Borrowers generally need a minimum score of 640 to qualify for a USDA loan. In some cases, USDA lenders may consider a lower score with additional borrower credit analysis.
- VA Loans: Backed by the U.S. Department of Veterans Affairs, VA loans are available to serving military and veterans and their families. The government does not have a minimum credit score requirement to qualify for VA loans, although many lenders – who actually provide the financing – require a minimum score of 620.
- Jumbo Loans: Jumbo Loans are larger than normal size mortgages; they exceed conforming lending limits set by Freddie Mac and Fannie Mae – currently $647,200 in most markets. Many giant lenders require a credit score of 700 or higher to qualify due to the increased risk of borrowing such a large amount.
What is a good credit score for buying a house?
When considering the best credit score for buying a home, many lenders use the FICO (Fair Isaac Corp.) model for credit scores. It ranks consumers on a range of 300 to 850 points, with a higher score indicating less risk for the lender.
- 800 or more: Exceptional
- 740-799: Very good
- 670-739: Good
- 580-669: Just
- 579 or less: Poor
How Your Credit Score Affects Your Mortgage Rate
Although it is up to specific lenders to determine which score borrowers should enjoy the lowest interest rates, sometimes even a difference of a few points in your credit score can significantly affect your monthly payments. For example, the difference between a 3.5% interest rate and a 4% interest rate on a $200,000 mortgage is $56 per month. That’s a difference of $20,680 over a 30-year term.
“A low credit score can make it less likely you’ll qualify for the most affordable rates and could even result in your mortgage application being rejected,” says Bruce McClary, spokesperson for the National Foundation for Credit Counselling. “It’s still possible to get approved with a low credit score, but you may need to add a co-signer or reduce the overall amount you plan to borrow.”
A co-signer would be responsible for the debt though, so getting someone to agree is not always easy. Also, if you miss payments, it could harm your co-signer’s credit and your relationship with them.
Here’s how much you’d pay at current rates (as of August 2022) for each credit score range. These examples are based on national averages for a $300,000 30-year fixed mortgage.
|760-850||4.835%||$1,580||$268,926||If your score rises to 700-759, you could pay an additional $14,610|
|700-759||5.057%||$1,621||$283,535||If your score increases to 760-850, you could save an additional $14,610|
|680-699||5.234%||$1,654||$295,310||If your score jumps to 700-759, you could save an additional $11,775|
|660-679||5.448%||$1,694||$309,693||If your score jumps to 699-680, you could save an additional $14,383|
|640-659||5.878%||$1,775||$339,068||If your score increases to 660-679, you could save an additional $29,375|
|620-639||6.424%||$1,881||$377,244||If your score jumps to 640-659, you could save an additional $38,177|
Bankrate’s Loan Comparison Calculator is a handy tool to help you see interest rates for credit scores. You can also use Bankrate’s Mortgage APR Calculator to run the numbers and see what your monthly mortgage payment might look like with different APRs.
Why Your Credit Score Matters to Lenders
Your credit score helps lenders determine your ability or inability to repay the mortgage (and, subsequently, their risk). Lenders also look at your debt-to-income ratio (DTI), the percentage of monthly debt to the income you are bringing in.
To illustrate, if you earn $4,000 per month and have $1,250 in credit cards, loans, housing, and other payments, your DTI ratio would be 31%. The ideal ratio is below 36%, although some lenders accept more with a higher down payment.
Can I get a mortgage with a low credit score?
It’s possible to get a mortgage with a low credit score, but you’ll pay higher interest rates and higher monthly payments. Lenders may be stricter on other aspects of your finances, such as your DTI ratio, if your credit is tarnished.
Keep in mind that credit requirements vary from lender to lender. Shop around with several lenders to find one that will work for you.
How to improve your credit score to buy a house
Before looking at homes, it’s a good idea to check your credit score and pull your credit reports from the three major credit agencies. Addressing credit issues early on can help boost your score before applying for a mortgage.
If your credit score isn’t great, there are still options. Instead of settling for the mortgage rates you currently qualify for, consider postponing home ownership and working to increase your credit score and improve your options. Here are some quick tips to help you:
1. Check your credit report and fix errors
Before applying for a mortgage, request a copy of your credit reports from the three major credit agencies: Experian, Equifax and TransUnion. Normally, you can access your credit reports from each bureau once a year for free, but due to the COVID-19 pandemic, you are entitled to a free credit report from each bureau once a week until the end of 2022.
If you find inaccurate or missing information, file a dispute with the credit reporting agency and the creditor. Clearly identify each item you dispute and be sure to include supporting documentation.
2. Pay off credit card balances below 30% of your credit limit
Your credit utilization ratio is the amount of your debt compared to your available credit. To calculate it, divide the amount of debt by the amount of available credit.
If you have $10,000 in debt and $20,000 in available credit, for example, your credit utilization rate is 50%. Lenders like to see credit utilization of 30% or less.
3. Pay all bills on time
Your payment history represents 35% of your credit score. Although late payments stay on your credit report for seven years, their impact on your score diminishes over time.
4. Don’t close old lines of credit after paying them off
Closing unused accounts sounds like a good idea, but it can increase your credit utilization rate and cause your credit score to drop.
5. Do not open new lines of credit or take out large loans
Generally, the less debt you have, the better off you are when applying for a mortgage. FICO recommends against opening new credit accounts to increase your credit utilization rate, as each credit application can lower your score slightly. Once your credit has improved, review your purchases within 30 days. Staggering rate requests can hurt your score. You can also use our mortgage calculator to estimate your monthly mortgage payments.
Conclusion on the credit score needed to buy a house
There’s no universal credit score you’ll need to buy a home, as score requirements differ depending on the type of loan you’re applying for. At the bare minimum, you’d want a score of around 620, unless you’re going for an FHA. And, as a general rule, the higher your score, the easier it will be for you to qualify for a mortgage. That’s why improving your credit score is key to getting better mortgage rate deals from lenders.