The credit score you need to buy a house will depend on the type of mortgage you’re applying for, other factors that lenders use to evaluate your creditworthiness, and on the interest rate and terms you’re willing to accept.
Here’s a closer look at how your credit score and other factors may impact your ability to get a mortgage.
How Does Your Credit Score Affect Mortgage Approval?
Your credit score isn’t the only thing that affects your ability to get a mortgage, as many lenders emphasize your debt-to-income ratio and overall credit history, too. It is still a major factor.
Your score gives lenders a quick assessment of your financial situation. With a higher score, you’ll likely qualify for lower down payments and lower interest rates. If you aren’t sure where your credit stands, here are some general categories of credit scores:
- Excellent: 740+
- Good: 700-739
- Fair: 630-699
- Poor: 629 and below
Keep in mind that even if you’re approved for a mortgage with a less-than-ideal score, a lower credit score may mean you get a mortgage with less favorable terms. The lower your credit score, the riskier you look to lenders, and they may ask for a higher down payment or offer you a mortgage at a higher interest rate.
Building up your credit before applying for a mortgage can save you a significant amount of money in the long run, but most experts don’t recommend spending a lot of time trying to bring up your score if it’s already good. If you do, it’s possible that mortgage rates will go up in the meantime, ultimately costing you more money.
What Credit Score Do You Need for Different Types of Loans?
What credit score is needed for a mortgage? The answer depends on the kind of mortgage you’re applying for. Here are some common types of mortgages and the scores you need to be approved:
Conventional Loans
Conventional loans can come from a variety of different lenders. The term “conventional” just means that the loan is not backed by a government agency. The minimum credit score for conventional loan applicants is almost universally 620, but if your credit score is higher (740 or above), you’re more likely to be approved for loans with lower down payments and lower interest rates.
FHA Loans
FHA loans are backed by the Federal Housing Administration. They’re a good choice if you have a lower credit score.
- The minimum credit score for an FHA loan with a 3.5% down payment is 580.
- FHA loans may be approved with a credit score as low as 500, but you’ll need to put down a 10% down payment.
These loans are backed by the FHA but made by private lenders. Some lenders have their own criteria, and not all FHA lenders will approve loans for borrowers with credit scores at the low end of the range.
VA Loans
There is no minimum credit score requirement for a VA loan, a loan partially guaranteed by the U.S. Department of Veterans Affairs. However, since the VA does not directly disburse loans (it just guarantees them), your VA loan will come from a private lender.
Since there’s no official minimum credit score for VA loan applicants, different lenders may or may not have minimum score requirements. For those that do, it’s usually a FICO® score of about 580.
USDA Loans
These loans are backed by the US Department of Agriculture but are disbursed from approved lenders. In addition, the property you buy must be in a “designated rural area.” Your income also can’t be more than 115% of the median income for your area.
There is no official minimum credit score for USDA loan applicants, though most approved lenders require a minimum score of 640. That said, if you have a lower score, you may still be approved after a loan underwriter looks carefully over your finances.
Jumbo Loans
As the name suggests, jumbo loans are large loans that exceed the FHA’s limits for mortgages. The limit varies by location, but across most of the United States, it is $726,200, and because they are so big, you need to have a very high credit score to be approved for a jumbo loan, often one of 700 or more.
What Other Factors Influence a Lender’s Decision?
Every time a lender grants a mortgage, they are taking on a financial risk, so it makes sense that they would assess more factors than just your credit score. Here are some other factors they will likely assess:
- Income and Employment. Lenders want to see steady employment with an income large enough to let you pay the loan.
- Credit Utilization: Most lenders want you to be using 30% or less of your available credit
- Whether You Have a Co-Signer: The minimum credit score for a mortgage with a co-signer may be lower.
- Your Debt-to-Income Ratio (DTI): This shows how much of your income goes toward your debts. Most lenders prefer a DTI of 36% or less, but if other factors are positive, you may be approved with a DTI of up to 43%.
- Derogatory Marks: Bankruptcies, delinquencies, and accounts in collections may hurt your chances.
Before you apply for a mortgage, it’s a good idea to get a copy of your credit report so you can look for errors and take steps to build your credit before applying, if need be.
Finding the Right Mortgage for You
There’s no universal minimum credit score for mortgage applicants, but if you want to get the lowest interest rate possible, don’t just shoot for the minimum. Aim to get your score as high as you can. A few percentage points on a mortgage rate might not sound like much, but over the years, a higher credit score can save you thousands.
