Is a 640 Credit Score Enough to Buy a House? What You Should Know

If you're shopping for a house, having a good credit score can improve your chances of getting a mortgage with better terms. According to the most recent data from FICO, the average FICO score is 717 among American consumers. 

With a 640 credit score, you can still qualify for a mortgage, but you might not be eligible for lenders’ best interest rates. Here’s what you need to know about how to get a home loan if your credit score is 640.

Is 640 a good credit score for buying a house?

Credit scores are one of several factors lenders consider when determining whether to approve you for a home loan. They're also used when calculating interest rates and terms. Your credit score provides lenders with a snapshot of your financial reliability. 

Several credit score models exist, including industry-specific scoring models. The credit scoring model most commonly used by mortgage lenders is the FICO score. FICO scores range from 300 to 850, with 850 being the highest score a consumer can achieve. 

A FICO score of 640 is considered a fair score; a “good” credit score ranges from 670 to 739. Still, a fair score can qualify you for certain mortgage loans, including government-backed loans like FHA and VA loans. 

Mortgage options for a 640 credit score

If your credit score is 640, there are several types of mortgage loans available to you: 

FHA loans 

FHA loans are backed by the Federal Housing Administration, and you can qualify with a score as low as 500 if you put down 10%. If your credit score is 580 or higher, you may qualify with a down payment as low as 3.5%. FHA loans are often used by first-time homebuyers because of their flexible qualifications.

If you finance your home with an FHA loan, you’ll need to pay mortgage insurance premiums, both upfront and monthly. 

VA loans

The Department of Veterans Affairs backs these loans and does not require a down payment or private mortgage insurance (PMI). VA loans are for eligible military service members, veterans, and their families. 

While the VA doesn’t set a minimum credit score, lenders may have their own requirements; many accept scores as low as 580. Instead of PMI, VA loans require a funding fee, which ranges from 1.25% to 3.3% of the loan amount, depending on whether you choose to make a down payment and other factors.

USDA loans

USDA loans are for homebuyers who are buying property in designated rural areas and meet income requirements. Backed by the U.S. Department of Agriculture, these loans don’t require a down payment, and most lenders accept credit scores starting at 640. 

To qualify, borrowers must purchase a home in an eligible area as defined by the USDA. While these loans offer competitive mortgage rates, they also include upfront and annual guarantee fees, which are similar to mortgage insurance. 

Conventional loans

Conventional loans aren’t backed by a government agency, and they’re available from credit unions, banks and online mortgage lenders. You generally need a credit score of at least 620, though different lenders set their own criteria. 

What are the pros and cons of buying a house with a lower credit score?

Buying a home with a credit score of 640 offers opportunities and challenges.

Knowing the advantages and drawbacks can help you make a more informed decision: 

Tips to improve your credit score before buying a house

Improving your credit score before you apply for a mortgage can help you qualify for better rates and save money. Below are actions you can take now to start improving your score: 

• Pay down debt: Lenders may see you as a risky borrower if you have high outstanding balances. Reducing your credit card balances and other debt lowers your credit utilization ratio (the amount of available credit you’re using).
• Pay your bills on time: Consistently making on-time payments demonstrates financial responsibility. In fact, payment history is one of the most significant factors affecting credit scores, accounting for 35% of your score calculation. 
• Avoid new credit applications and accounts: Too many hard credit inquiries can temporarily lower your credit score. You should also avoid opening new credit accounts if you're planning to apply for a mortgage in the near future. New accounts also lower your average account age, which can affect your score if you have a limited credit history. 
• Increase your credit limits: Requesting a credit limit increase from your bank or credit care lender can lower your credit utilization ratio without incurring new debt. 
• Keep old credit accounts open: The length of your credit history factors into your credit score. Older accounts strengthen your credit history, so it helps to keep them open even if you don’t use them. 
• Review your credit report: Errors on your credit report could hurt your credit score. You can request a copy of your report weekly from AnnualCreditReport.com. Look for inaccurate information in your report, such as typos, fraudulent activity, old accounts that should have been marked as paid, and other errors. If you find incorrect information, file a dispute through the credit bureau and contact the party that provided the information to the credit bureau. 
• Build credit: If you have limited or no credit history, you can build credit by opening a traditional or secured credit card. Use it for small transactions, such as a recurring monthly subscription or bill, and pay the full balance on time each month.