What credit score do you need to buy a house?
When you’re thinking about buying a home, you need to understand how your credit score impacts your ability to qualify for a mortgage loan.
Let's break down everything you need to know about what credit score is needed to buy a house, and how to put yourself in the best possible position to secure the right home loan for you.
Ready to take the next step? Get pre-approved with Rate today and explore different loan options based on your eligibility through our Same Day Mortgage.
What is a Good Credit Score?
A good credit score falls between 670 and 739, based on the FICO score model. A score in this range gives you a higher chance of qualifying for a home loan with better terms.
But even if you don’t have a higher credit score, there are certain loan programs such as FHA loans which are designed to help people with low credit scores become homebuyers.
Factors that Impact Your Credit Score
There are five key factors that affect your FICO score:
Payment History (35%)
Your payment history is the most important factor in your credit score. Mortgage lenders want to know if you’ve made your payments on time or if you’ve fallen behind. Late payments, especially if recent or frequent, can seriously damage your score. To keep your payment history strong, make sure to pay all your bills on time, every time.
Credit Utilization (30%)
This refers to the percentage of your available credit that you’re using. It’s recommended to keep this rate below 30% to avoid negatively impacting your score.
Paying down your balances and avoiding maxing out credit cards are great ways to improve your utilization.
Length of Credit History (15%)
The longer you’ve had credit, the better. Credit bureaus like Equifax, Experian, and TransUnion consider the age of your oldest account, the average age of all accounts, and the age of your newest account when determining your credit score.
Managing credit over time shows lenders that you can handle various types of credit responsibly.
Types of Credit (10%)
A healthy credit mix—such as having credit cards, a mortgage, and a personal loan—shows that you can manage your personal finances well.
New Credit (10%)
Opening new credit accounts can impact your score, especially if you apply for too much credit in a short period. Every time you apply for new credit, it results in a "hard inquiry," which can temporarily lower your score. Be cautious about applying for new lines of credit when you’re planning to apply for a mortgage.
Credit Score Ranges Explained
Credit scores typically range from 300 to 850. Lenders will look at this number closely when determining whether you qualify for a loan and what your interest rate will be:
Poor Credit (300-579)
A credit score in this range significantly limits your mortgage options. Most conventional lenders may not approve your loan application unless you’re applying for a government-backed loan like an FHA loan, which allows for lower credit scores but comes with stricter terms.
Fair Credit (580-669)
With a fair credit score, you may face higher interest rates and may need to provide a larger down payment to secure a mortgage.
Good Credit (670-739)
A good credit score opens up more real estate options and provides access to competitive interest rates. Lenders see borrowers in this range as lower risk, making it easier to qualify for conventional loans with better terms.
Very Good Credit (740-799)
A score in this range shows that you’ve managed your credit responsibly over time. Borrowers in this range often get approved quickly for mortgages and are offered some of the best interest rates available.
Excellent Credit (800-850)
An excellent credit score is the pinnacle of creditworthiness. If you’re in this range, you’ll find it easiest to secure a mortgage with some of the lowest interest rates and the most favorable loan terms.
What Credit Score Do I Need to Buy a Home?
What credit score do you need to buy a house? The exact minimum credit score you need depends on the type of mortgage you’re applying for. Each loan program has different requirements.
For example, FHA loans, which are backed by the Federal Housing Administration, generally require a lower minimum credit score than a conventional mortgage. Other loans, like jumbo loans or VA loans, have their own specific credit score criteria.
It’s essential for borrowers to understand these differences, as they affect not only loan eligibility but also the interest rate and loan terms offered by lenders.
Can I get a mortgage with a credit score of 550?
Yes, you can get a mortgage with a 550 credit score. While interest rates may be higher, with the right loan product and careful planning, buying a home with this credit score is achievable.
Can I buy a house with a 700 credit score?
Absolutely, a 700 credit score is considered good and can qualify you for competitive interest rates on various mortgage options, including conventional loans. With this score, you are likely to have access to better terms and lower monthly payments compared to those with lower scores, making it easier to afford a home.
Comparison of Credit Score Requirements by Loan Type
Different loan types have varying credit score requirements. Here's a quick look at what you need for each.
Credit Score for FHA Loans
An FHA loan is a popular option, especially for first-time homebuyers or those with bad credit.
What Are the Credit Score Limits for FHA Loans?
The minimum credit score for an FHA loan is 580 if you want to make a down payment of 3.5%. If your score is between 500 and 579, you’ll need to put down 10% or more, which could still be an attractive option for those with lower scores.
One reason these loans are so attractive is that they are more forgiving for people with higher debt-to-income ratios (DTI). That means, even if you have significant monthly obligations relative to your monthly income, you might still qualify.
However, keep in mind that with a lower score, your mortgage payment will likely be higher, as the lender will see you as a riskier borrower. Private mortgage insurance (PMI) may also be required, which could add to your monthly costs.
Credit Score for VA Loans
VA loans, backed by the Department of Veterans Affairs, are available to veterans, active military, and their families.
While VA loans don’t have an official minimum credit score requirement most lenders require at least 620 for approval.
The big advantage of VA loans is that you don’t need a down payment, and PMI isn’t required, which helps lower your monthly payments.
These loans are especially beneficial because they also tend to have more favorable loan terms and lower interest rates compared to other loan types.
However, even with the VA’s backing, lenders will still consider your creditworthiness and might require a higher score to offer the best rates.
Credit Score for USDA Loans
If you’re buying in rural areas, USDA loans, backed by the U.S. Department of Agriculture, may be an option.
These loans often require a minimum credit score of 640 and offer 0% down payment options for qualifying buyers. However, they’re only available for homes in certain rural and suburban locations.
One thing to keep in mind with USDA loans is that although the loan amount may be lower due to geographic restrictions, the interest rates can be very favorable.
However, borrowers should be aware that private mortgage insurance might still be required if your credit history is less than ideal.
Credit Score for Conventional Loans
For a conventional loan, which isn’t backed by the government, most lenders require a credit score of at least 620. If your score is higher—usually 740 or above—you’ll be more likely to qualify for lower interest rates.
However, with a score below 620, you may still qualify, but you could face higher interest rates and potentially more strict loan terms.
Additionally, with conventional loans, borrowers with lower scores or those who put less than 20% down will need to pay for private mortgage insurance, which can increase the overall mortgage payment.
Does My Credit Score Impact How High or Low My Mortgage Rate Is?
Yes, your credit score plays a significant role in determining your mortgage rate. Simply put, a higher credit score usually makes you a lower risk to lenders, so you’ll likely be offered lower interest rates.
On the flip side, if you have a lower credit score, you might still qualify for a mortgage, but your interest rate will likely be higher.
A difference of just a few points in your VantageScore or FICO score could significantly impact how much interest you pay over the life of the loan. So, improving your credit score before applying can save you thousands over time.
How Credit Scores Affect Interest Rates
For example, if you have a score of 760 or higher, you could get a significantly lower interest rate compared to someone with a score in the 620 range. This can make a big difference in how much you end up paying over the life of the loan.
The Cost Difference Between Good and Bad Credit
Having a higher credit score could potentially save you thousands of dollars in monthly payments over the life of your mortgage. For instance, a lower score could mean paying $100 or more per month than someone with excellent credit.
Borrowers with bad credit may have fewer options and could end up with a less favorable type of loan or a conventional mortgage that carries a higher rate.
Can I Buy a Home With Bad Credit?
Yes, you can still buy a home with bad credit, but it typically means higher interest rates and larger monthly payments. While loan options may be limited, improving your credit score before applying can increase your chances of getting better terms and saving money in the long run.
First-Time Homebuyers Strategies to Improve Credit Score Before Applying for a Mortgage
Here are some key strategies to boost your score:
Reduce Credit Card Balances
Two of the fastest ways to improve your credit score is by paying down your credit card balances, and lowering your credit utilization ratio.
Make On-Time Payments
Set up automatic payments or calendar reminders to ensure that you never miss a due date, as late or missed payments can lower your score.
Check for Errors in Your Credit Report
Errors on your credit report, such as incorrect account information or inaccurate payment histories, can drag down your score. Request a free copy of your credit report from annualcreditreport.com, review it for errors, and dispute any inaccuracies to have them corrected.
Avoid Applying for New Credit
Applying for new credit accounts shortly before seeking a mortgage can lower your score due to hard inquiries on your report. Try to avoid opening any new accounts in the months leading up to your mortgage application to keep your score as high as possible.
How Can I Get Started on a Mortgage?
If you’re ready to take the plunge into homeownership, but you are wondering if your credit score is enough to buy a house, getting a mortgage pre-approval is the first step. This process helps you understand your limits and shows sellers that you’re a serious buyer. It may help speed up the process, as lenders have already reviewed your finances.
Lenders will look at your monthly income, debt-to-income ratio (DTI), credit history, and other factors to determine your eligibility.
With Rate’s Same Day Mortgage pre-approval, you can get pre-approved for a mortgage quickly, making the home-buying process even smoother.
If you’re ready to take the next step, explore Rate’s tailored loan options designed just for you. Our Same Day Mortgage pre-approval gets you one step closer to owning your dream home fast.
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