If you’re thinking about buying a house, you’ve no doubt spent time considering your credit score. It feels like so much is riding on this one number, but your credit history isn't the only thing lenders look at when making a decision about your mortgage.
Most lenders consider any score above 740 to be “very good,” but you can qualify for some loans with “good” or even “fair” credit.
What is the minimum credit score to buy a house?
There’s no hard-and-fast rule about what score is good enough to qualify for a mortgage. It depends on what type of mortgage loan you get and other factors that we'll explain below.
Conventional mortgages (through a private lender, not insured by the federal government) have the strictest credit score requirements. For a conventional mortgage, you need a FICO credit score of at least 620. Jumbo loans, which are nonconforming conventional loans, typically require a score between 680 and 700.
FHA loans are common among first-time buyers because they are easier to qualify for. The credit score requirements are different depending on how much you are able to put down: If you have a FICO Score between 500 and 579, you need to put at least 10% down, but you can get away with a 3.5% down payment if your score is above 580.
VA loans have even looser credit score requirements. The Department of Veterans Affairs doesn’t have a minimum credit score requirement, but most lenders like to see scores start at between 580 and 620. You must meet minimum service requirements and present a Certificate of Eligibility (COE) to a VA-approved lender to qualify.
Similarly, the U.S. Department of Agriculture doesn't have a set minimum requirement, though most lenders like to see a credit score of at least 640 for USDA loans. You still have to demonstrate “a willingness and ability to repay debts” and meet specific income requirements. Alternative credit is allowable for people without traditional credit.
What do mortgage lenders look for on your credit report?
Because mortgages require borrowing so much money, lenders want to be sure they can really trust you to pay it back. If you’ve had bills go to collections or you’ve filed for bankruptcy, these could be red flags. Lenders also look for derogatory items and delinquent accounts.
Your FICO score is based on information in your credit reports. This three-digit number provides lenders a “snapshot of your financial habits. The more missed or late payments on your credit reports, the more likely it is that your FICO Score will be low,” according to Rocket Mortgage.
Your credit report is a financial report card. Your credit score is the grade. It goes up or down based on how well you’ve paid back money you’ve borrowed in the past — with credit cards, car loans and student loans, for example.
Your credit report is a financial report card. Your credit score is the grade.”
These are the most critical factors in your credit score:
Timeliness of payments
How credit is used
Length of credit history
New credit accounts
Types of credit used
If you have a very low score, you might have a better chance of qualifying if you’re able to offer a higher down payment (typically around 20% or more of the home’s purchase price). You can get advice from a housing counselor through the Department of Housing and Urban Development.
What else do mortgage lenders consider?
While your credit history is an essential piece of the puzzle, it’s important to know the other factors mortgage lenders look at as they assess your merit as a borrower.
Debt-to-income ratio: Your DTI ratio tells lenders how much of your gross monthly income goes toward repayment of debt. It’s calculated by dividing your monthly debt by your total gross monthly income. Lenders generally look for a number below 36% to 42%.
Loan-to-value ratio: LTV represents the amount of your mortgage loan compared with how much the house is actually worth. It’s calculated by dividing the loan amount by the house’s value. Conventional mortgage lenders like to see a ratio of less than 80%.
Savings and assets: Having savings or investments shows lenders you’re 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 does credit score affect mortgage rates?
Banks generally offer the lowest interest rates to those with the best credit scores, and, as a result, APRs, or annual percentage rates, are lower for borrowers with higher scores.
The average credit score in the U.S in 2020 was 710.
Most lenders consider any score above 740 to be very good. If you’re above 760, lenders might offer incentives like credits and rebates because they can be more sure you won’t default. Combined with a lower interest rate, this can save you a lot of money in the long run.
A couple of percentage points might seem minor, but it can add up to significantly higher costs in your monthly mortgage payment and over the life of the loan. Below, compare average rates for a 30-year fixed mortgage for a $300,000 loan (as of publishing).
Keep in mind that your mortgage rate is determined by multiple factors —your credit score is just one of these. Lenders also consider your income and employment status, which don’t affect your credit score one way or the other.
FICO score
APR
Monthly payment
760 to 850
2.804%
$1,233
700 to 759
3.026%
$1,269
680 to 699
3.203%
$1,298
660 to 679
3.417%
$1,333
640 to 659
3.847%
$1,406
620 to 639
4.393%
$1,501
Average rates for a 30-year fixed mortgage by credit score, according to FICO, as of Dec. 15, 2021.
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. This will unlock better interest rates and keep your costs as low as possible.
Lowering your credit utilization while increasing debt payments will help boost your score. Avoid applying for any new credit cards if you can, but don’t close old accounts.
Here are three more tips to fix your credit enough to buy a home.
1. Create a workable budget
First, write down all of your living expenses. Be sure to include electricity, gas and water bills, car maintenance (including fuel), food, groceries and any miscellaneous items, like money spent on entertainment or child support payments.
Then, write down how much money you earn each month (total regular income after all deductions).
Subtract your expenses from your income. This is your budget. If it’s a negative number, look for ways to reduce expenses or increase your income. Seeing it all on paper helps you come up with a plan for how to spend and save each month.
2. Get a grip on your debt
Understanding how much you owe is the first step to getting out of debt. Make a list of all your creditor expenses, such as credit cards, student loans and car payments. Next to each, write down how much you owe and the interest rate.
It’s usually most strategic to pay off high-interest debt first. A consultation with a credit counselor could be helpful if you’re struggling with a lot of credit card debt. You might also consider a debt management plan.
3. Work with creditors
Your credit history shows how well you pay back money you borrow. Creditors are the people or institutions that lend you money, and they can be surprisingly willing to negotiate.
If your credit score is low due to errors on your report (caused by identity theft, for example), consider working with a credit repair company to get them removed. If you don’t have any credit, look into building some up with a secured credit card.
How long it takes to fix your credit enough for approval varies. It could take two months or two years. Once your score meets your goal, contact mortgage lenders in your area to see which loan options and interest rates you can get.
Mortgage lenders use scores from the three national credit bureaus (Experian, Equifax and TransUnion) in something called a “tri-merge.” Your tri-merge credit report gives lenders an idea of how likely you are to repay a loan.
Each credit bureau has a slightly different score model. Mortgage lenders typically look at your FICO Score 2 (Experian), FICO Score 4 (TransUnion) and FICO Score 5 (Equifax).
Can I buy a house with bad credit?
A few credit blips shouldn’t prevent you from being a homeowner. Because lenders consider borrowers with low credit scores to be “riskier,” you might have to make up for it with a more substantial down payment or add a co-signer to the loan.
For government-backed loans, you can apply with a credit score as low as 500. Remember, your credit score takes a small ding if the lender does a hard inquiry during the mortgage preapproval process.
If you keep getting denied, there are ways to boost your score. Read how to find the best bad credit home loans for more information.
How do I check my credit score?
There are several ways to check your credit score. You might be able to see your score for free through your credit card company. You can also sign up for a credit monitoring service (paid subscription model). Before checking your score, check out your credit report (free through AnnualCreditReport.com ) to make sure all the information is accurate.
What credit score is needed to buy a condo?
You basically need the same credit score you need to get a house (at least 580 to 620) to buy a condo. There are also income and down payment requirements. In some ways, condo mortgages are more complicated and harder to get than a traditional home loan, however.
What affects your credit score?
Five primary factors affect your credit score : payment history, debt utilization, length of credit history, types of credit utilization and number of recent credit inquiries.
The three credit reporting bureaus weigh these factors differently. For example, FICO pays the most attention to your payment history and the total amount of debt. VantageScore heavily considers your total credit usage, available credit and credit mix.
Bottom line: What is a good credit score to buy a house?
Mortgage lenders generally require a credit score of at least 580 to 620 to buy a house. Lenders consider any score above 740 to be “very good.” But you don’t actually need a good credit score to buy a house — you can get a government-backed FHA loan, for example, with a credit score as low as 500. However, it can be strategic to boost your credit before you try to buy a home — you’ll get better rates and have more options.
Sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
