Homeownership is important to many Americans for various reasons, and most begin their journey with the same question: “What credit score is needed to buy a home?” Though this is just one of several potential hurdles for future homeowners, it is vital for virtually every lending scenario.
A credit score is a type of calculation that communicates your financial reputation to lenders. It comes in a variety of flavors, where the FICO model – which generates scores between 300 to 850 – is used in some fashion by mortgage lenders. The impact of credit scores essentially boils down to this: higher numbers signal lower perceived risk based on your history of managing debts and payments.
Throughout the following, we’ll examine the minimum credit score to buy a house for the most popular kinds of loans.
Minimum Credit Score to Buy a House, by Mortgage Type
While not strictly mandatory, most lenders rely on score thresholds to reflect the probability you’ll handle mortgage payments responsibly. Falling short of the minimum credit score to buy a house may exclude you from obtaining your preferred mortgage type, but not always – in almost all cases, lower scores or bad credit will increase both rates and down payment for the lender to offset the risk.
Each loan category has different strengths and weaknesses, where the minimum credit score to buy a house and other conditions vary between categories. What credit score is needed to buy a house? The following are the typical scores for approval:
Conventional Loans
A 620 credit score is the usual minimum for conventional mortgages from most banks and mortgage-focused lenders. Approval will further depend on a few other financial factors, like your debt-to-income ratio. Though 620 is the minimum credit score to buy a house using a conventional mortgage loan, 720 and above will increase approval odds while usually lowering other costs, such as the down payment and interest rate.
Jumbo Loans
A jumbo loan is available for borrowers seeking to purchase a “high-cost home” that exceeds conforming limits, a classification that can change depending on the market. What credit score is needed to buy a house with a jumbo loan? The bare minimum is 700, though this can fluctuate depending on several circumstances, such as the location and the individual’s net income. Because this lending type is generally not backed or securitized by a consumer financial bureau, lenders tend to be stricter about these kinds of loans.
FHA Loans
Technically, a 500 credit score meets the FHA minimum credit mark – but scores of at least 580 are needed to qualify for a 3.5% down payment instead of the usual 10%, as with most conventional loans. Ultimately, the decision falls on the lender, and the majority will still want a 620 minimum credit score. Also, note that the down payment percentage isn’t set in stone and may fluctuate depending on other financial circumstances.
VA Loans
The VA imposes no formal minimal credit score to buy a house because eligibility revolves around the loan seeker’s military or veteran status. Still, reasonable to objectively good scores (i.e., 720 and higher) will maximize competitive placement and may allow some wiggle room with other financial parts of the equation.
USDA Loans
Numeric thresholds are quite fluid for USDA loans used for farming real estate, so there’s no easy answer to the question of what credit score is needed to buy a house with this type of loan. The USDA is more interested in a buyer’s complete financial profile, much more so than assessing scores, as new land or farming facility purchases often yield more revenue for the individual, thus giving the borrower more ability to repay the loan. While the numeric credit score is less important compared to other lending scenarios, certain items that appear on a credit report, such as on-time payment history, will be considered.
What Credit Score is Needed to Buy a House & Its Influence on Interest Rates
Loan eligibility aside, your credit score greatly impacts mortgage expenses through assigned interest rates and affects the upfront costs. Lower numbers (signaling higher risk) prompt lenders to charge more for money loaned to offset potential losses they might incur.
As a general rule of thumb, each additional point falling below 740 increasingly raises pricing until the bare minimum score is reached. Luckily, improving short-term scores before applying is realistic for disciplined consumers who invest interest in their debts.
A few steps potential borrows can try to boost credit scores from 40 to 60+ points in 6 to 12 months include:
- Pay down credit cards to be at or less than 30% credit utilization. Remember that private loans and tax debts will be visible to collectors, impacting your calculated debt-to-income ratio.
- Resolve any mistakes on reports and pay off any debts in collections. Most lenders will require anything in collections to be paid, as well as anything with the potential to create a lien on your property.
- A history of late payments, especially within a 3-year timeframe, will adversely impact credit scores. Here, time is the only real fix, so ensure all debts are paid on time or early, whenever possible.
Potential buyers should take an interest in their credit scores and reports as soon as possible to ensure their report is in the best possible shape before approaching a lender. Tools like a mortgage payment calculator can help users calculate hard numbers to better understand their financial health in preparation for becoming a homeowner.
The Takeaway On the Minimum Credit Score Needed to Buy a House
Mortgages emphasize credit reputation as indicated by scores, but many subtle nuances can help or hinder the process. Prospective buyers demonstrating a history of responsible debt and financial management should feel confident purchasing after objectively assessing their situation and checking all the boxes.Think you’re ready to become a homeowner? Get pre-approved for a mortgage loan today!
