Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.
What is a good credit score to buy a house? The credit score you’ll need depends on the type of mortgage you’re seeking. Federal Housing Administration (FHA) loans, conventional loans, jumbo loans and other loan types vary when it comes to the credit score needed to buy a house.
Before you look at houses, it’s smart to check your credit score and pull your credit reports from the three major credit agencies. Addressing credit issues early on can help you raise your score before you apply for a mortgage. Normally you can access your credit reports from each bureau for free once per year, but due to the pandemic, you can access them weekly now through the end of 2022.
Credit score needed to buy a house by mortgage type
The minimum credit score to be eligible for a mortgage depends on the type of loan and lender. Generally, the higher your credit score, the more likely you’ll qualify for a mortgage loan. Similarly, you’ll want a good or excellent credit score for the best mortgage rate offers.
Here’s a quick rundown of typical minimum credit scores for different loan types:
- Conventional loans: Many lenders will accept a credit score as low as 620 for conventional loans, but they might have other requirements for those borrowers, such as a higher income.
- FHA loans: The FHA guarantees loans for borrowers with lower credit scores and low down payments. You can qualify for an FHA loan with a credit score of 500 to 579 with a 10 percent down payment, or with a 3.5 percent down payment if your score is 580 or higher.
- USDA loans: The U.S. Department of Agriculture backs the USDA loan program for low- to moderate-income borrowers purchasing 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 will consider a lower score with additional analysis of a borrower’s credit.
- VA loans: Backed by the U.S. Department of Veterans Affairs, VA loans are offered to active and veteran military personnel and their families. The government doesn’t have a minimum credit score requirement to qualify for VA loans, though many lenders require a minimum score of 620.
- Jumbo loans: These loans have loan amounts that exceed conforming loan limits — currently $647,200 in most markets — and are the hardest to qualify for if you have bad credit. Many jumbo lenders require a credit score of 700 or higher to qualify because of the increased risk.
What is a good credit score for buying a house?
When considering the best credit score to buy a house, many lenders use the FICO (Fair Isaac Corp.) model for credit scores. It grades consumers on a 300- to 850-point range, with a higher score indicating less risk to the lender.
- 800 or higher: Exceptional
- 740-799: Very good
- 670-739: Good
- 580-669: Fair
- 579 or lower: Poor
How your credit score affects your mortgage rate
Although it’s up to specific lenders to determine what score borrowers must have to be offered the lowest interest rates, sometimes even the difference of a few points on your credit score can affect your monthly payments substantially. For example, the difference between a 3.5 percent interest rate and a 4 percent rate on a $200,000 mortgage is $56 per month. That’s a difference of $20,680 over a 30-year mortgage term.
“A low credit score can make it less likely that you would qualify for the most affordable rates and could even lead to rejection of your mortgage application,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling. “It’s still possible to be approved with a low credit score, but you may have to add a co-signer or reduce the overall amount you plan to borrow.”
A co-signer would be responsible for the debt, however, so it’s not always easy to get someone to agree.
You can use Bankrate’s loan comparison calculator to help you see interest rates for credit scores.
Using myFICO.com’s loan savings calculator, here’s how much you’d pay at the current rates for each credit score range. These examples are based on national averages for a 30-year fixed loan of $300,000.
|FICO score||APR*||Monthly payment||Total interest paid||Price changes|
|*APRs as of April 19, 2022
|760-850||4.753%||$1,565||$263,574||If your score changes to 700-759, you could pay an extra $14,544|
|700-759||4.975%||$1,606||$278,118||If your score changes to 760-850, you could save an extra $14,544|
|680-699||5.152%||$1,638||$289,841||If your score changes to 700-759, you could save an extra $11,723|
|660-679||5.366%||$1,678||$304,163||If your score changes to 700-759, you could save an extra $26,045|
|640-659||5.796%||$1,759||$333,418||If your score changes to 660-679, you could save an extra $29,255|
|620-639||6.342%||$1,865||$371,450||If your score changes to 640-659, you could save an extra $38,032|
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 examine your debt-to-income ratio (DTI), the percentage of monthly debt obligations relative to how much income you bring in.
To illustrate, if you earn $4,000 per month, and have $1,250 in credit card, loans, housing and other payments, your DTI ratio would be 31 percent. The ideal ratio is less than 36 percent, though some lenders will accept more with a higher down payment.
Can I get a mortgage with a low credit score?
It is possible to get a mortgage with a low credit score, but you’ll pay higher interest rates and higher monthly payments. Lenders may be more stringent about other aspects of your finances, such as how much debt you have, if your credit is tarnished.
Keep in mind that credit requirements vary from lender to lender. Shop around with multiple lenders to find one that will work with you.
How to improve your credit score to buy a house
If your credit score isn’t great, there are still options. Instead of settling for the mortgage rates you currently qualify for, consider postponing homeownership and working to revive your score and improve your options. Here are some quick tips to help:
1. Check your credit report and correct any errors
Before applying for a mortgage, request a copy of your credit reports from the three major credit reporting agencies: Experian, Equifax andTransUnion. You’re entitled to a free credit report from each of the agencies once a week now through 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’re disputing and be sure to include supporting documents.
2. Pay down credit card balances to below 30 percent of your credit limit
Your credit utilization ratio is the amount of debt you have compared with your available credit. To calculate this, divide the amount of debt into the amount of available credit.
If you have $10,000 in debt and $20,000 in available credit, for instance, your credit utilization ratio is 50 percent. Lenders like to see credit utilization of 30 percent or less.
3. Pay all bills time
Your payment history accounts for 35 percent of your credit score. While late payments stay on your credit report for seven years, their impact on your score diminishes over time.
4. Don’t close older credit lines after paying them off
Closing unused accounts sounds like a good idea, but it may raise your credit utilization ratio and your credit score can drop.
5. Don’t open any new lines of credit or take out large loans
The less debt you have, the better off you are. FICO recommends not opening new credit accounts to increase your credit utilization ratio because each credit request can slightly lower your score. When your credit has improved, rate-shop within a 30-day window. Spreading out the rate inquiries can hurt your score. You can also use our mortgage calculator to estimate your monthly mortgage payments.
There’s no universal credit score you need to buy a house, as score requirements differ based on the type of loan you’re taking out. As a general rule, the higher your score is, the easier it will be to qualify for a mortgage. That’s why it’s essential to improve your credit score for better mortgage rate offers from lenders.
Use Bankrate’s mortgage APR calculator to run the numbers and see what your monthly mortgage payment might look like with different APRs.