What credit score do you need to buy a house?

What is the minimum credit score to buy a house? It depends on your loan program, your lender, and your other qualifications. 

This article covers credit scoring, the minimum credit score needed for different types of mortgage loans, and how to improve your credit score.

Understanding Credit Scores

A credit score is a three-digit number that shows how you manage multiple forms of debt.

“Your credit score will range between 300 and 850. It reveals the likelihood you will pay your bills on time,” says Alexandra Rodriguez-Howell, with Silverton Mortgage in Atlanta. “Think of it as a roadmap of your purchases and repayment history. This number is important because when you apply for a loan or credit card, the creditor will use this score to determine the likelihood you’ll pay your bills on time. The higher your credit score, the less risk you pose to the creditor.”

Martin Orefice is the founder/CEO of Rent To Own Labs in Chicago. He explains that your credit score estimates your financial health based on several factors. These include your income, total debt, debt-to-income ratio, and history of paying your bills on time.

“Lenders will examine your credit score whenever you are considering a new loan – whether it be for a mortgage, tuition, new or used car, or a credit card,” says Orefice.

The primary issuer of credit scores today is FICO, although VantageScore also issues similar credit scores. Your FICO score depends on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), the mix of credit used (10%), and new credit accounts (10%). 

To determine your scores, FICO assesses your credit reports issued by the three major credit bureaus: Equifax, TransUnion, and Experian. You can actually have multiple FICO scores, depending on which FICO scoring model and which bureau’s credit report is used.

Why Your Credit Score Is Important

According to Shelby McDaniels, channel director for Corporate Home Lending at Chase, your credit score helps determine the interest rate and other costs you will pay on a mortgage loan or other form of credit.

“When it comes to homeownership, your credit score, along with your debt-to-income ratio, is a major factor in determining your loan terms. It can determine whether you’ll be approved for a mortgage and, if so, at what rate,” McDaniels says.

Put simply, a higher credit score indicates past responsible credit behavior.

“The higher your credit score, the more likely you are to receive more favorable credit terms, making you a more competitive buyer in a tough market. This will likely make potential lenders and creditors more confident when evaluating your request to borrow money from them. It also can equate to lower payments and less interest paid throughout your mortgage loan,” continues Rodriguez-Howell.

Minimum Credit Scores by Mortgage Type

All of this begs an important question: What is the minimum credit score you need to qualify for different mortgage loan programs available?

“A credit score of 620 or higher is recommended when you apply for many loans. If your score is below 620, it will be much tougher to get approved by a lender, depending on the loan type,” says Rodriguez-Howell. “Overall, a good credit score is typically between 670 to 739. A score of 740 to 799 is considered very good. And 800 and up is considered excellent.”

Keritan Shelby, founder/CEO of JMS Consulting Firm in Dallas, a credit repair firm, offers a good rule of thumb to follow.

“If you want the best interest rates, you need to shoot for a 740 FICO score or higher,” he says.

Conventional/conforming loans

Conventional mortgage loans backed by Fannie Mae and Freddie Mac have different lending requirements than other types of loans.

The experts agree to aim for a credit score of at least 620 when applying for a conventional loan. However, you’ll need a higher credit score if your down payment is low or you have other challenges. 

FHA loans

Don’t qualify for a conforming/conventional mortgage loan? You might consider an FHA loan, which allows a lower down payment (as little as 3.5% down).

“The minimum credit score for an FHA loan is based in part on how much of a down payment you can make. You can get one with a score between 500 and 579 if you can put 10% down. But you need a credit score of at least 580 to put 3.5% down,” notes Orefice.

VA loans

Are you an active duty member of the military, veteran, or surviving spouse? If so, you may qualify for a VA loan, which is probably the most generous mortgage loan available in the industry. That’s because a VA loan can be had for zero down with no mortgage insurance required; plus, you may qualify for a lower interest rate than you would for other loan types.

“A VA loan also doesn’t have income limitations or location requirements,” adds Rodriguez-Howell. “While the VA itself doesn’t set a required minimum credit score for a VA loan, most participating mortgage lenders will want to see a credit score above 620.”

USDA loans

If you don’t mind buying a home in an approved rural area, and you can meet income-eligibility requirements, you can pursue a USDA home loan, which also offers 100% financing.

“USDA loans typically require a minimum credit score of 640. But getting to 700 can mean you’ll be required to put less down and pay a lower interest rate,” Orefice says.

Jumbo mortgages

Seeking a home that requires borrowing more money than conventional conforming loans allow? Fortunately, a jumbo loan is available if you qualify. Just be prepared to pay a higher interest rate and possibly receive less favorable loan terms.

“The minimum credit score needed for a jumbo loan is typically at least 680, but that’s up to the discretion of your lender,” Rodriguez-Howell remarks.

In Orefice’s experience, jumbo mortgages require at least a 700 credit score.

How to Overcome a Low(Ish) Credit Score When Buying a Home

You may be able to get home financing with a lower credit score if you’re able to compromise. Mortgage lenders look at your entire profile, and you can often make up a shortcoming in one factor by being stronger in another one. 

• Reduce your loan-to-value ratio by making a larger down payment. Putting 20% to 25% down makes a big difference to lenders. 
• Check your debt-to-income ratio (your minimum monthly debt payments including the new mortgage divided by your gross monthly income). Get it under 36% by paying off debt or choosing a cheaper home.
• Add a co-signer or co-borrower with good credit. 

Non-prime mortgages are another option. Expect to pay higher fees and interest rates and put more money down. And consider a lease option, which gets you into a home and gives you time to improve your credit and save a bigger down payment.