What is the Best Credit Score for Buying a Home?

Are you about to apply for a mortgage? Your credit score is about to take center stage. This number is one of the most important factors mortgage lenders use in determining if your home loan will be approved. Sure, the higher the number, the better your chances at landing the best rates and terms. But, don’t worry if you’re not “excellent.” There isn’t a one-size-fits-all answer to figuring out the best credit score to buy a house. It depends on what type of loan you’re getting. Let’s unravel the credit score mysteries and explore your options for buying a home depending on your preferred mortgage type.

Conventional Loan

You’ll need good credit if you’re like most Americans and are looking for a conventional mortgage. Because private lenders finance these loans, the individual organization will set the requirements. However, you can usually expect a minimum credit score of at least 620 to qualify for this type of loan. Organizations sometimes have even stricter requirements, such as requiring a credit score of 660.

You will have even better loan terms if you have excellent credit and are going with a conventional mortgage. For example, if you have excellent credit with a FICO score of 740 or higher, you won’t have to make a down payment that is as large. You will also have a chance to secure that organization’s lowest interest rates available at that time.

Jumbo Loans

As their name implies, a jumbo loan provides you with a more considerable amount of financing than other loans. Because of this, you will need exceptional credit to mitigate the increased risk that the lender is taking. Typically, you should have a credit score of 700 or higher to meet their jumbo loan requirements.

FHA Loans

Because the Federal Housing Administration insures FHA loans, they pose less risk for the lender. That means the credit requirements are less stringent. If you’re making a down payment that’s below 10%, you should be able to qualify for the loan with a FICO score of 580. Some programs require as little as 3% down. However, if you can make a down payment of 10% or more, you won’t have to meet any credit score requirements.

VA Loans

If you’re an active service member, veteran, or the spouse of someone who died in the line of duty, a VA loan is probably on your radar. The U.S. Department of Veterans Affairs insures them. Although the Department of Veterans Affairs itself doesn’t have a minimum score requirement, individual lenders can still choose a minimum credit score. Typically, you’ll need a FICO score of at least 620 to qualify for one of these loans.

USDA Loans

The last option is a USDA loan. If you don’t have the best credit score for buying a home, this type of mortgage is for you. The Department of Agriculture insures these loans. The credit score requirements aren’t as strict because they are meant to finance homes for low- and moderate-income individuals in rural areas. Often, the minimum is 580, but if you look around, you can probably find a lender that will accept you with an even lower FICO score.

Explore Your Mortgage Options

As you can see, various financing options exist for all kinds of credit scores. No matter what type of credit you have, purchasing a home is often stressful, especially if it’s your first home. Talk to a local home loan specialist when you’re ready to take that big step. We will help you through the entire process and answer any questions you have as they come up. If you do have bad credit, there are steps you take to boost your credit score to buy a house.

FAQs

Is my credit score the only thing lenders consider?

A credit score is a fast look at an individual’s creditworthiness, but the underwriters also look at many other factors. Factors lenders consider are other lines of credit you have, like auto loans, student loans, home equity loans, and credit card debt. They look to see if you have always made on-time payments for your debt. Your credit utilization, age of credit, number of credit applications, debt-to-income ratio, and monthly income play weigh into the decision to qualify you. Specific loan programs also have requirements, like being a military veteran or a first-time homebuyer.

What if I do not have a credit history?

Many people may not have an established credit history for many reasons. Maybe they are just starting out, or perhaps they’ve never qualified for credit cards before. Perhaps they have some types of credit, but they need more of a credit mix or history showing they make payments on time. Some credit reporting agencies are now giving ways to show you are responsible with your money. You can report your rental history and its timely payments. Another option is to co-sign on a credit card with an individual you trust who has a longer credit history. That can increase your credit mix and get your history started.

How do lenders find your credit score?

When you submit a loan application, the lender will also pull your credit report to get your score and a complete credit history. Three major credit bureaus track credit history: Experian, TransUnion, and Equifax. You are entitled to one free credit report each year. Some credit card companies will give you a score update as part of their included credit monitoring service. This is not usually the full assessment of your credit health.

What can borrowers with credit scores lower than these numbers do?

The first step should be to pull your free credit report and see where you stand. Check that everything on the record is accurate. Now, you can strategize whether to work on paying down credit card balances, establishing a longer payment history, paying off outstanding debt, or using other tactics. You may also work with credit score services that partner with you to improve your financial health and score.

How can having a better credit score impact by monthly payments?

Borrowers with a FICO credit score of “good” taking out a 30-year fixed-rate home loan on $300,000 had a national average mortgage rate of 8.077% in June 2024. Those with “excellent” scores on the same loan had an APR of 6.488%. That’s $314 less on the monthly mortgage payment or $3,804 less a year.

What is the average credit score?

In March 2024, the American average VantageScore was 705.

Updated July 2024