When you’re buying a home, your credit score is a key factor in the mortgage and interest rate you’re eligible for. Many mortgage programs, such as conventional or VA loans, have a stated minimum credit score to qualify while others vary from lender to lender.
Your credit score is just one element of your mortgage loan application. Learn how credit scores differ by mortgage type, how lenders view your credit score and what you can do to raise your score to be eligible for better interest rates.
What is the minimum credit score needed to buy a house?
The minimum score needed depends on the type of mortgage you apply for. Government-backed loans tend to have more lenient credit requirements than conventional loans, which often require a score of 620 or better. Here are the minimum requirements for government-insured loans:
- Department of Veterans Affairs (VA): VA loans have no minimum score
- Federal Housing Administration (FHA): FHA loans have a minimum score of 500 if you make a down payment of at least 10%
- U.S. Department of Agriculture (USDA): USDA loans require a minimum score of 620 or 640, depending on the type of mortgage (though exceptions can be made if you have nontraditional credit)
Note:
Conventional loans aren’t backed by a government agency, so you might see different minimum requirements from lender to lender.
How do different loan types affect the required credit score?
The minimums for federally backed mortgage programs (such as FHA, VA and USDA loans) are set by their respective administrative bodies. However, the lenders that grant the loans may have higher credit score requirements than the regulations state.
While VA loans don’t have a minimum credit score established by the government agency, the lender that originates the loan will likely set a minimum score for borrowers.
“Your credit score is a representation of how likely you are to fulfill any debt obligation based on historical data, [so] a higher score reassures the lender you will be a responsible borrower,” says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. “Certain products, such as interest-only loans, require a higher credit score as they are riskier products for the bank. Similarly, jumbo loans can have higher credit score requirements due to the higher loan amounts.”
Note:
With a conventional loan, you can borrow up to $766,550 in most areas and $1,149,825 in high-cost areas. If the home price exceeds those limits, you might need to apply for a jumbo loan.
How does your credit score impact mortgage rates?
A higher credit score can make you eligible for lower interest rates. You can use calculators on websites like myFICO.com to see how your annual percentage rate (APR) could change based on your credit score.
Tip:
If you don’t have a perfect score, don’t worry. Most lenders use bands of scores (between 720 and 760, for example), so it typically doesn’t matter where your score lands within the band. You’ll usually only see a rate reduction if you move up a band.
Alvarez notes that in some cases, lenders can get an exception for a low credit score if there are strong compensating factors, such as proof of assets and/or stable income history.
What other factors do lenders consider besides credit score?
Your credit score is one of many factors lenders take into account. To determine the terms and interest rate on your loan, lenders look at your whole financial picture, including your:
- Length and stability of employment
- Income level
- Down payment amount
- Debt-to-income ratio (DTI)
These elements and your credit score will help the lender predict how likely you are to repay your loan.
How can you improve your credit score to qualify for a mortgage?
Raising your credit score takes time, so it’s important to start as early as possible. There are several steps you can take to improve your credit score before you apply for a home loan:
- Get a copy of your credit report: You can obtain copies for free at AnnualCreditReport.com. The site collects information from all three credit bureaus (Experian, Equifax and TransUnion).
- Contest any errors you find: If there are any mistakes, fraudulent accounts or incorrect balances on your report, you can submit a form to the appropriate bureau to have the error investigated and removed.
- Pay your bills on time: Your payment history is the most influential factor, accounting for 35% of your credit score. Set up reminders or pay bills automatically to make sure payments are made on time.
- Reduce credit utilization: Lenders will look at how much available credit you’re using. A greater amount of unused credit will translate to a better credit utilization ratio. Reduce your balances or ask lenders to raise your credit limit.
- Pay down your balances: If possible, pay off what you can of your debts, particularly higher-interest loans.
- Don’t make new credit inquiries: Each one will ding your credit score a few points, so wait to apply for new credit cards or other loans. The exception to this is if you’re shopping for mortgage lenders: Credit pulls within a 45-day window are typically counted as one pull.
What credit score is needed to buy a house FAQ
What is the best credit score to buy a house with a conventional loan?
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