What Credit Score Is Needed to Buy a House?

What is the minimum credit score for buying a house?

The minimum credit score needed for buying a house generally depends on the lender and what type of mortgage loan you get.

Conventional loans and jumbo loans, which are backed by private lenders like banks, credit unions or online lenders, typically have the strictest minimum credit score requirements. The minimum credit score you’ll need generally varies by lender, among other factors like the loan amount.

“There are a few banks that have no minimum score requirements, but in general, for a conventional loan, the minimum score is 620,” said Melissa Cohn, regional vice president at William Raveis Mortgage. “There are lenders that will go to 580 as long as there are no late mortgage payments in the past 12 months.”

Cohn said that for jumbo loans, which are nonconforming conventional loans, some lenders require scores over 680, but most lenders look for scores over 700 or 720.

Government-backed loans, like Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, either have lower or no minimum credit score requirements.

For FHA loans, the minimum credit score is 500 or 580, depending on the level of financing you want. VA loans and USDA loans don’t require a minimum credit score, though VA and USDA lenders can set their own minimum credit scores. Some of these lenders may prefer buyers to have a minimum score between 580 and 620 for VA loans and a score of at least 640 for USDA loans.

» MORE: Conventional mortgage vs. FHA

What credit score do you need for the best mortgage rates?

Homebuyers with excellent credit scores (FICO scores over 800) will qualify for the best mortgage rates and loan terms, followed by homebuyers with very good credit scores (FICO scores of 740 to 799).

While a higher interest rate for a lower score might seem minor, it can significantly increase your monthly mortgage payment and total loan costs.

» MORE: How are mortgage rates determined?

What do mortgage lenders look for with your credit score?

Your credit score changes based on how you manage different credit accounts like credit cards, car loans and student loans. Lenders will generally consider:

• Payment history: Whether you pay your bills on time
• Amounts owed: How much of your available credit you’re currently using
• Length of credit history: How old your oldest open credit account is
• New credit: If you’ve opened any new credit accounts recently
• Credit mix: The types of credit you’re using, like revolving credit or installment loans

The two main credit scoring models that lenders use are FICO and VantageScore, though FICO scores are slightly more common. Both models weigh the above factors slightly differently, though payment history and credit utilization are the most important factors for both.

Other factors mortgage lenders consider

Even if you have excellent credit, your lender will still require a lot of information from you.

Wayne, a reviewer from Florida, experienced this when he applied for a 15-year mortgage loan. “The paperwork required to be filed was extensive,” he said. “I was sitting with an 840 credit score. I didn't think all that paperwork would be necessary with that kind of credit score, credit history, and income level.”

In addition to your credit score, lenders also consider factors like your credit report, income, DTI ratio, assets and down payment amount.

While your credit score is an essential part of evaluating you as a borrower, there are other factors mortgage lenders look at.

• Credit report: Your credit report is different from your credit score, and includes more information on your financial history. Lenders look at your credit report for red flags such as bills in collections, foreclosures or bankruptcies.
• Debt-to-income (DTI) ratio: Your DTI ratio tells lenders how much of your gross monthly income goes toward debt repayment.
• Down payment and loan-to-value (LTV) ratio: Your LTV ratio is your mortgage loan amount (how much you’re financing) compared with how much the house is actually worth. So, the larger your down payment is, the less you’ll need to finance.
• Savings and assets: Having savings or investments shows lenders you’re financially responsible and have access to additional funds to keep up with mortgage payments.
• Employment history: Most lenders require at least two years of consistent employment in the same field, though you’re unlikely to see salary requirements stated.

How to improve your credit score to buy a house

If your credit score is on the lower end of the spectrum, it’s smart to take steps to improve it before applying for a loan to buy a home. This will unlock better interest rates and keep your costs as low as possible.

• Pay bills on time: Make sure to pay all of your bills on time. Your payment history makes up 35% of your FICO score, making it the most important component.
• Use less of your available credit: Your credit utilization ratio, or how much of your available credit you’re using, makes up 30% of your FICO score. Lowering your utilization rate as much as you can will boost your score.
• Don’t apply for new credit: Applying for new credit cards or loans will temporarily decrease your credit score due to a hard inquiry on your report. Applying for new credit before applying for a home loan may also be seen as risky to mortgage lenders.
• Don’t close old credit accounts: Your credit history length makes up 15% of your FICO score. If you close your oldest credit card account, the length of your credit history will drop, and so will your score.

» MORE: How to check your credit score

FAQ

Bottom line

Before buying a house, you’ll need to know where your credit score stands so you know your odds of approval for a loan. Your credit score serves as a reflection of your creditworthiness, providing lenders with insight into how you manage debt. If your score isn’t in good shape, take some time to improve it by making regular and on-time payments, reducing your overall debt and limiting new credit applications.

But keep in mind that your mortgage rate is determined by multiple factors, and your credit score is just one of many. Lenders also consider your current income, employment history, assets, current debts and down payment amount, among other factors, so it’s best to make sure all components of your financial history are in as good of shape as possible before applying for a loan.