In this article:
- How important is your home-buying credit score?
- Mortgage FICO scores are used as the primary credit score for home buying
- What credit score is needed if you’re buying with a partner?
- What is a good credit score to buy a house?
- Mortgage credit score ranges
- What is the minimum credit score needed to buy a house?
- Other loan qualification factors needed to buy a house
- How to get your credit score ready to buy a home
- Frequently asked questions about home-buying credit scores
A favorable credit score to buy a house is typically in the high 600s and 700s. Anything higher than that is considered “exceptional”, and helps borrowers get the very best mortgage rates. Certain loan types even allow you to buy a house with a credit score as low as 500.
It’s possible to buy a house with a wide range of credit scores, but the higher your credit score, the more likely you’ll be able to secure more favorable loan terms with your lender. If you’re buying a home with cash, you won’t need to be concerned with your credit score, as you won’t be working with a lender.
How important is your home-buying credit score?
Your credit score plays a crucial role in your ability to buy a home. Not only does it help you qualify for a mortgage, but the higher your credit score, the lower your interest rate will be. A rate that’s just 0.25% to 0.5% lower means you’ll pay thousands of dollars less over the course of your loan.
Mortgage lenders focus on credit reports because they generally provide a comprehensive summary of the way you have managed your finances over time. A high score is a sign you’re a responsible borrower. A low score suggests you do not have a solid debt history, or have not handled debt well in the past and are more likely to have issues making payments on your mortgage, making you a risky borrower in their eyes.
Lenders rely on your credit score, but also review all information reported on your credit report to understand your past financial behavior and your current financial situation. Your credit score is determined by your broader credit report, which provides information about your payment history, number and types of open accounts, whether any of your debt has been sent to collections and if you’ve ever filed for bankruptcy.
Mortgage FICO scores are used as the primary credit score for home buying
When reviewing your application for a mortgage, lenders use your FICO score, a credit scoring model used specifically for mortgages. A FICO score is a single number that’s calculated using a proprietary formula and data compiled by the three major credit reporting bureaus (Experian, Equifax and TransUnion).
FICO credit scores can range from 300-850. According to Experian, most consumers have credit scores that fall between 600 and 750.
What’s included in a mortgage FICO score?
Your FICO score takes into consideration multiple data points, with some factors having a greater impact on your overall score:
- Payment history for all credit accounts – 35%
- The portion of your available credit is being used – 30%
- How long you’ve had an active credit profile – 15%
- The mix of credit types you have – 10%
- Your recent credit activity – 10%
What credit score is needed if you’re buying with a partner?
If you’re buying a home with a co-borrower, your lender will review both of your credit scores and calculate a “decision score.” This score is the lowest middle score of the two borrowers.
Here’s an example:
Let’s say you have credit scores from the three credit bureaus of 720, 740 and 760 and your co-borrower has credit scores of 640, 660 and 680. The lowest scores come from your co-borrow, and their middle score is 660. Lenders will use a decision score of 660 to decide whether to offer you both a loan and determine the terms.
A major benefit of buying together is qualifying for a larger loan amount because your combined income is higher than your individual income. But if one applicant has a low credit score, you may consider applying for the loan using only the applicant with a healthy credit score. If you omit one applicant’s credit score, you must also omit their income from the application.
What is a good credit score to buy a house?
A good credit score to buy a house is 720 or higher. A credit score of 800 or higher is ideal, as it unlocks the very best loan rates and terms. Borrowers with scores of 670 can still expect decent rates.
Mortgage credit score ranges
If you’re just starting to consider a mortgage loan, you may not have talked to a lender yet, which means you may not have access to your official home buying credit report, which includes your individual credit score, or FICO score. Lenders are required to use a FICO score to meet loan qualifications for Fannie Mae, Freddie Mac, VA, FHA and USDA.
However, there are other online sources that offer you the ability to see your credit score. The score you’ll see online is likely your Vantage score, whether it’s being provided by your bank, credit card company or credit monitoring service.
A Vantage score is similar to your FICO score, but the two scores can vary somewhat because they rely on slightly different information. While they both use a range of 350 to 850, they weigh various factors in your credit report differently. With Vantage scores, a 660 is considered good.0
Here’s how credit ratings stack up, FICO vs. Vantage:
|Credit rating by score type||FICO||Vantage|
|Excellent credit||800-850||720 and above|
|Good credit||670-739 (Good)|
740-799 (Very Good)
|Poor/bad credit||300-579||619 and below|
Despite the differences, your Vantage score is a good first step in determining if your credit score is in good shape. Vantage score is a reasonable indicator of your FICO score. Anecdotally, another sign of strong credit is if you’re receiving a lot of promotional credit card or credit line offers.
What is the minimum credit score needed to buy a house?
The absolute lowest credit score to buy a house and secure financing is a FICO score of 500, but you’ll be expected to pay a larger down payment with higher interest rates. Buyers who pursue an FHA loan, one of the most common loan types for first-time buyers, usually need a score of 580 or higher.
The score you’ll need often depends on the type of loan you’re using and other qualifying factors, like the size of your down payment, income and debts. Below are examples of minimum credit scores needed for specific loan types.
Broadly speaking, a credit score of 720 or better makes conventional loans optimal, while scores between 680 and 720 may find favorable loan terms in conventional or FHA, and below 680 (or borrowers with less than 10% down) will likely find the best terms in FHA loans.
The minimum credit score to buy a house with a conventional loan is 620 to 660.
Conventional loans are the most common type of mortgage loan, and are especially popular with repeat buyers who have larger down payments. They’re popular because they offer lower interest rates than other loan types and because you can avoid private mortgage insurance if your down payment is 20% or more. However, since they’re backed by private lenders instead of the government, the qualification criteria can be stricter.
The minimum credit score to buy a house with an FHA loan is 500 to 580.
FHA loans have helped many first-time buyers purchase homes because they’re backed by the government and credit score requirements are less strict. If your credit score is at least 580, you’ll only be required to make a down payment of 3.5%. If your score is between 500 and 580, that number increases to 10%. Also, all FHA loan recipients must pay a monthly mortgage insurance premium for the life of the loan.
For FHA loans though, lenders are not just focused on the FHA loan requirements. They are also considering their investor requirements because after funding the loan, they typically sell loans to a loan servicing company. Lenders may not be able to re-sell loans given to borrowers with credit scores less than 620, possibly as low as 580. So even though FHA requirements will allow 500 to 580 as a minimum credit score, a minimum range of 580 to 620 is more realistic for prospective FHA borrowers.
The minimum credit score to buy a house with a VA loan is 580 to 620.
VA loans are available to active military service members and veterans. VA loans offer competitive mortgage rates and the option to not have a down payment when purchasing a home. Like FHA loans, VA loans are affected by secondary market investor requirements and market conditions. Unlike an FHA loan, you won’t be required to pay mortgage insurance, but there is a required upfront funding fee, which is used to help cover the cost of the program.
The minimum credit score to buy a house with a USDA loan is 580 to 620.
Available for low-income borrowers trying to purchase a home in a rural area, USDA loans are backed by the US Department of Agriculture. As long as the home you’re buying is in a qualifying area, your loan requirements will be much more flexible than conventional loan types. Like FHA and VA loans, lenders will also consider investor requirements and market conditions in addition to the loan requirements. No down payment or mortgage insurance is required, but you will pay an upfront funding fee.
The minimum credit score to buy a house with a jumbo loan is 680 to 700.
A jumbo loan has its name because of the amount of money being borrowed. Jumbo loans are used for home buyers in expensive housing markets where loan amounts can exceed conventional loan limits. Because of the amount of money being borrowed, minimum credit scores are higher and many lenders require a 20% down payment. Rates are similar to those of a conventional loan.
Other loan qualification factors needed to buy a house
Your credit score is a major factor in your ability to qualify for a mortgage. However, it’s also important to pay attention to the other factors that influence your lender’s decision.
Income and assets
When you’re getting started on your financing journey you’ll simply tell your lender about your income; this could include receiving a loan pre-qualification. Next, if you choose, you can apply to get pre-approved for a loan by providing your lender with proof of your income and assets. Your lender is looking for evidence that you’ll be able to comfortably pay your mortgage bill each month. The documents you’ll provide include W2s, pay stubs, tax returns, bank statements and rental payment history or a signed purchase and sale agreement, if applicable.
You will need to provide proof of employment when you get more serious about buying. In general, your lender will verify your employment during pre-approval, then again at closing. Note that proof of employment is not needed during the pre-qualification step, but you’ll want to have an idea of yearly income to understand what you can afford.
Your lender will also review your existing debts to ensure your budget isn’t stretched too thin to accommodate a monthly mortgage payment. They’ll use your credit report to review things like your credit card debt, monthly car loan payments, student loan payments, personal loan payments, child support or alimony, vacation or rental property costs and any outstanding home loans or liens.
Debt to income ratio
Your lender will use a calculation called a debt-to-income (DTI) ratio to measure your ability to manage monthly payments and repay your debt. Your DTI is represented as a percentage of your monthly debt payments against your gross monthly income. For example, a DTI of 40% means 40% of your monthly income goes to repaying debts. You can calculate your own DTI manually, or use our online DTI calculator. A healthy DTI should not exceed 50% (including your prospective mortgage payment) even if the loan program requirements allow a higher percentage.
The maximum DTI a lender will allow depends on your loan type and a lender-by-lender exercise to weigh the multiple aspects of your financial circumstances against one another (debts, income, down payment size, credit score, etc.).
Here are the by-the-book requirements without consideration for your unique financial circumstances.
|Loan type||Maximum debt-to-income (DTI) ratio|
Once you’re under contract and preparing to finalize your loan, your lender will calculate your loan-to-value (LTV) ratio. LTV compares the amount you intend to borrow against the value or the property you’re buying. This calculation is used to determine if you’ll need to pay mortgage insurance. LTV is expressed as a percentage, and the lower the number, the better. A higher down payment lowers your LTV ratio, as you’ll be borrowing less money.
You can calculate your LTV by dividing your loan amount by the home’s appraised value. The number you get will be a decimal. Simply multiply by 100 to express it as a percentage.
A first-time buyer might have an LTV of 96.5% on an FHA loan or even 100% LTV for a VA loan. On a conventional loan, LTV could be 97% but having an 80% LTV (or lower) will eliminate mortgage insurance.
How to get your credit score ready to buy a home
The best thing you can do as you start preparing to buy a home is to review your credit report and see your Vantage score. You can request all three of your credit reports (Equifax, Experian and TransUnion) annually from AnnualCreditReport.com. Errors on credit reports are unfortunately common, so check your reports for errors. Inconsistencies small and large can negatively impact your credit score, so check early and often, and request corrections as needed.
If you’ve only recently started building your credit, you may not have a credit score available yet. It can take between three and six months to generate enough credit activity that a score can be calculated. A good first step is to open a single account and make regular payments for a few months in a row. There are also some services available that will ensure your monthly rent and utility payments show up on your credit report.
Tips to improve your credit score
If buying a home is on the horizon and you’re less than impressed with your credit score, there are a lot of ways to boost your score.
Pay off delinquencies ASAP: If you have any late payments on your account, work to pay them off as soon as possible. If paying them off completely isn’t an option, consider consolidating your debt into a single, new account with a low promotional rate.
Use automatic payments for your bills: Life gets busy and it can be hard to remember to pay bills on time. Take advantage of automatic payment tools to ensure you’ll never make a late payment again.
Lower your credit utilization: Use less of your available credit by requesting credit line increases or spending less on your credit cards.
Keep accounts open: It can seem counterintuitive, but you should keep credit accounts open, even if you don’t use them regularly. This is because the length of your credit history is a factor in your credit score.
Avoid hard credit inquiries: Lenders make a hard credit inquiry when you apply for a mortgage. But there is a grace period of 45 days before that credit pull hits your report. This allows you to shop for rates with a handful of lenders without multiple hard inquiries reducing your credit score. However, it’s best to avoid additional non-mortgage-related hard credit inquiries in the months leading up to financing, such as opening new accounts or loans.
Buying a home with poor credit
Even with a low credit score, buying a home may still be within reach, so take the first step of getting a pre-qualification so you’ll have an estimate of how much you may be able to afford with your current credit history.
Then, be sure to tell your lender about any previous financial struggles so they can help you find a financing solution that may work for you. For example, an FHA loan might be the right solution, as it allows scores as low as 580, or 500 with a larger down payment.
Frequently asked questions about home-buying credit scores
Can you buy a house without a credit score?
If you’re buying a house with cash, you can purchase a home without having a credit score. But, if you plan to buy a home with financing, you will be unable to do so if you have no credit.
Do you need good credit to buy a house?
You can buy a house without good credit, but it will cost you more long-term, with higher interest rates, higher monthly payments and possibly more spent upfront to buy down your interest rate to a competitive level.
What should your credit score be to buy a house?
Ideally, you should get your credit to the 720 to 760 range to receive the best conventional loan terms on your home purchase. For an FHA loan, USDA loan or VA loan a credit score of 670 will also result in favorable loan terms.