What is a Good Credit Score to Buy a House?

The credit score required to buy a home generally falls between 500 and 700. The exact number will depend on the mortgage type and the lender’s criteria. While home loans are available to buyers with low credit scores, securing the best mortgage rates normally requires good to excellent credit.

 

Keep reading to find out what is a good credit score to buy a house and how you can strengthen your credit before applying for a mortgage.

What Is a Credit Score?

A credit score is a three-digit number that reflects how well someone manages credit. Lenders use this number to assess how likely you are to repay loans and manage financial obligations responsibly.

 

As there are several types of credit scoring models, the FICO score is the most widely recognized. It evaluates several key factors to calculate your score:

 

Payment history: This looks at how reliably you’ve made past payments. Missed payments, defaults, foreclosures, or bankruptcies can hurt your score. On the other hand, making payments on time consistently can help improve it. Payment history makes up 35% of your FICO score.

 

Amounts owed: This measures how much debt you’re currently carrying. A major component here is your credit utilization ratio, how much of your available credit you’re using. For example, if you owe $4,000 on a credit card with a $10,000 limit, your utilization is 40%. It’s generally a good idea to keep this ratio under 30%. This category represents 30% of your score.

 

Length of credit history: This refers to how long your credit accounts have been active. Typically, having older accounts helps boost your score. Length of credit history contributes 15% to your total score.

 

New credit: This includes recently opened credit accounts. Taking on several new loans or credit lines in a short period, especially if your credit history is limited, can be seen as risky behavior. Credit inquiries tied to new accounts can also impact your score. New credit makes up 10% of your score.

 

Credit mix: This factor looks at the variety of credit types you use such as credit cards, installment loans, retail accounts, and mortgages. Having a healthy mix can work in your favor and makes up 10% of your score.

 

It’s also important to note that you don’t have just one FICO score. The three major credit bureaus- Experian, Equifax, and TransUnion, each maintain their own credit reports and generate individual scores. While your numbers might differ slightly across them, they’re usually within the same general range unless there’s an error on one of the reports.

Why Does Your Credit Score Matter When Buying a House?

Your credit score is a major factor in how lenders determine your eligibility when you apply for a mortgage. It also affects the loan conditions and interest rate that you are given.

 

Because it directly affects both your monthly mortgage payments and the overall amount of interest you will pay over time, obtaining a competitive interest rate is essential. You may be eligible for a reduced rate with a higher credit score, which would result in longer-term savings and more manageable monthly payments.

 

Lenders see a higher credit score as a sign of responsible financial behavior, making you a lower-risk borrower. As a result, a strong credit score can improve your chances of approval and help you access more favorable mortgage options, though other factors, like income and debt, also come into play.

 

Lenders usually review your credit reports from Experian, Equifax, and TransUnion when you apply for a house loan. The middle of your three scores is used if you’re applying alone. When two candidates submit joint applications, the lender often chooses the lower middle score.

What Credit Score Do I Need to Buy a House?

Credit score requirements for buying a home vary depending on the type of mortgage loan you choose. Each loan program has its own guidelines, and individual lenders may apply stricter standards when reviewing your credit. Below is a quick breakdown of what to expect:

Minimum Credit Scores by Home Loan Type

Conventional Loans – Minimum Credit Score: 620

Conventional mortgages usually require a credit score of at least 620, though some lenders might prefer a score closer to 660. These loans are not backed by the government and must meet standards set by Fannie Mae and Freddie Mac. They’re the most commonly used mortgage option for homebuyers.

Jumbo Loans – Minimum Credit Score: 700

Jumbo loans are designed for larger loan amounts that exceed conforming loan limits. Because of the higher risk, lenders typically look for a credit score of 700 or above when approving these loans.

FHA Loans – Minimum Credit Score: 500

Backed by the Federal Housing Administration, FHA loans are more flexible. If you’re able to make a 10% down payment, you may qualify with a credit score as low as 500. For down payments under 10%, a minimum score of 580 is usually required.

VA Loans – Minimum Credit Score: 620

While the Department of Veterans Affairs doesn’t set a minimum credit score, most lenders who offer VA loans look for a score of at least 620. These loans are reserved for eligible military service members, veterans, and some surviving spouses.

USDA Loans – Minimum Credit Score: 580

USDA loans, backed by the U.S. Department of Agriculture, are intended for low- to moderate-income buyers in rural areas. Although the USDA itself doesn’t specify a minimum score, most lenders require between 580 and 620 to qualify.

How Your Credit Score Affects Mortgage Rates

Your credit score doesn’t just determine whether you qualify for a mortgage, it also plays a major role in the interest rate you’ll be offered. Meeting the minimum score might get your foot in the door, but having a stronger credit profile can significantly lower your borrowing costs.

 

A higher credit score can open up more loan options and give you access to better interest rates, which can lower your monthly mortgage payment and reduce the total amount of interest paid over time. Here’s a look at average mortgage interest rates by FICO® Score range as of mid-July 2024:

Average Mortgage Rates by FICO® Score

In general, borrowers with better credit not only qualify for lower rates but also tend to borrow larger amounts. Below is a snapshot of average mortgage balances by FICO® Score as of September 2023:

Average Mortgage Balance by FICO® Score

A strong credit score not only improves your loan approval odds but also helps you secure more favorable borrowing terms, saving you money both monthly and long term.

Other Factors Mortgage Lenders Consider

As your credit score is an important part of your mortgage application, it’s not the only factor lenders evaluate. Several other elements help determine whether you qualify for a loan and what terms you’ll receive:

Credit History

Your credit score gives lenders a general sense of your financial habits, but they’ll also dive deeper into your credit reports. Negative marks like foreclosures, bankruptcies, or collections can raise concerns, even if your score falls within an acceptable range.

Debt-to-Income Ratio (DTI)

Lenders compare your total monthly debt payments to your gross monthly income to calculate your debt-to-income ratio. A lower DTI suggests you’re in a better position to manage a mortgage. Generally, a DTI under 43% is preferred, and a high ratio may limit the loan amount you qualify for.

Employment and Income History

Steady employment and consistent income are key to showing you can manage long-term mortgage payments. Lenders usually favor applicants who’ve held a salaried job or worked in the same industry for a couple of years. Those with irregular income or self-employment may need to provide additional documentation.

Down Payment

Your down payment reduces the lender’s risk and can work in your favor, especially if your credit score is on the lower end. A larger down payment might help you get better interest rates or even offset other financial weaknesses. With a 20% down payment on a conventional loan, you can also avoid private mortgage insurance (PMI).

Assets and Savings

Lenders may also look at your assets, such as savings, retirement accounts, or investment holdings, to ensure you have enough financial cushion. Having reserves left after your down payment and closing costs can demonstrate added financial stability.

Can You Get a Mortgage With a Bad Credit Score?

Getting a mortgage with a low credit score is possible but it often comes at a higher cost. Even a slightly elevated interest rate can add up to tens of thousands of dollars over the life of your loan. If you’re not in a rush to buy, it may be worth taking time to boost your credit before applying for a mortgage.

 

However, if buying a home is a priority and your credit isn’t in great shape, there are a few strategies that may help you improve your chances of approval and secure better terms:

Look Into FHA Loans

FHA loans are known for their flexible credit requirements. If you can make a down payment of 10% or more, you might qualify with a credit score as low as 500. These government-backed loans can be a good starting point for buyers with less-than-perfect credit.

Reduce Other Risk Factors

Improving other areas of your financial profile can help offset your credit score. This might include increasing your down payment, paying off high credit card balances to lower your credit utilization, or reducing your overall debt to improve your debt-to-income ratio.

Compare Offers From Multiple Lenders

Not all lenders evaluate credit in the same way, so it’s smart to shop around. Getting preapproved by several lenders or working with a mortgage broker can help you find a loan program that fits your situation and possibly offers more competitive rates.

Consider a Cosigner

A trusted family member or friend with strong credit might be willing to cosign your mortgage application. This can improve your chances of qualifying or help you secure better terms. Just make sure both parties fully understand the responsibilities involved before moving forward.

How to Improve Your Credit Before Getting a Mortgage

Improving your credit score before applying for a home loan can help you qualify for better rates and terms. Here are key steps to take:

1. Check Your Credit Score

Start by reviewing your credit score and reports from all three bureaus. Look for errors and dispute any inaccuracies to ensure your credit file is accurate.

2. Pay Down Debt

Lowering credit card balances can quickly improve your credit utilization ratio and reduce your debt-to-income (DTI) ratio both of which help your mortgage eligibility.

3. Avoid New Credit

Hold off on applying for new credit cards or loans before and during your mortgage process. New accounts can lower your score and raise your DTI.

4. Reduce Spending

Cut back on unnecessary expenses to save more and keep your credit balances low. This supports both your budget and your credit health.

5. Pay Bills on Time

Set up automatic payments to avoid missed due dates. On-time payments have the biggest impact on your credit score.

How to Buy a House With a Lower Credit Score

The following advice will help you in navigating the mortgage application process if your credit score isn’t perfect: 

Talk to Multiple Lenders

Check different lenders to compare rates and qualification rules. Some may be more flexible with lower credit scores. Be prepared to share your financial situation and highlight steady income and a strong down payment to strengthen your application.

Look Into FHA Loans

FHA loans are backed by the government and often have more lenient credit requirements. With a steady job, solid income, and a down payment of at least 10%, you might qualify. Keep in mind, mortgage insurance applies but can be removed after 11 years of on-time payments if you put down 10% or more.

Consider Refinancing Later

A lower credit score might mean a higher interest rate at first. Once your credit improves, refinancing could help you secure a better rate and lower your monthly payments, though your loan term will reset.

Use a Co-Signer

If qualifying alone is difficult, a trusted co-signer can boost your chances. This person agrees to take responsibility if you can’t pay. Staying current on payments is crucial to protect both your credit and the co-signer’s.

What Else to Consider Before You Buy a House

Before applying for a mortgage, keep these important factors in mind:

Know Your Budget

Factor in all housing costs including your mortgage payment, interest, property taxes, home insurance, and mortgage insurance if applicable. Lenders usually recommend these expenses stay within 25% to 28% of your gross monthly income. For example, if you earn $10,000 per month, your housing costs should ideally be no more than $2,800.

Prepare for Unexpected Costs

Owning a home means handling repairs and maintenance, which can come up unexpectedly. It’s wise to build an emergency fund covering at least 3 to 6 months of living expenses to manage these costs without stress.

Research Your Local Market

Take time to understand housing prices and trends in your area. Working with a knowledgeable real estate agent can give you valuable insights to decide if it’s the right time to buy and which neighborhoods fit your needs.

Plan for a Long-Term Stay

Buying a home involves upfront costs like a down payment and closing fees. Because of this investment, it’s generally best to buy if you plan to stay in the home for several years to make it worthwhile.

Consult a Financial Expert

Talking to a financial advisor can help you create a realistic budget and improve your financial readiness, increasing your chances of mortgage approval and getting the best loan terms.

Additional Qualification Criteria for Mortgage Loans

Besides your credit score, lenders review several other key factors to decide if you qualify for a mortgage and determine your loan terms and interest rate:

Stable Income

Lenders look for consistent income from jobs, business ventures, investments, or retirement funds, usually verified over the past two years or more. Steady income helps demonstrate your ability to repay the loan.

Debt-to-Income (DTI) Ratio

This ratio compares your monthly debt payments to your gross income. A lower DTI shows less risk to lenders, with many preferring a DTI of 36% or less to approve loans with favorable terms.

Down Payment Amount

The upfront amount you put toward the home’s purchase price matters. Larger down payments often lower your loan risk and borrowing costs. While 20% down is ideal, qualified buyers can sometimes put as little as 3% down on conventional loans, and specialty loans like VA or USDA may require no down payment.

Reserve Funds and Assets

Lenders also consider cash reserves or other assets you can quickly convert to cash. Having higher reserves reduces lender risk and strengthens your mortgage application.

Conclusion

Handling the mortgage process with confidence requires knowing what constitutes a good credit score for home purchases. There are loan programs for a variety of credit profiles, even while a higher credit score might lead to better interest rates and lending possibilities. You may get the finest mortgage possible by preparing your credit, being aware of your possibilities, and collaborating with reliable lenders. Having a high credit score will increase your chances of obtaining your ideal house at a reasonable price, regardless of whether you’re looking for a traditional loan or investigating government-backed programs. Take the necessary actions to improve your financial situation for a successful house purchase and begin reviewing your credit right now.

FAQs About What is a Good Credit Score to Buy a House

Q.1 What is the ideal credit score to buy a house?

Ans: The ideal credit score to buy a house is generally 700 or higher. Scores above 700 normally qualify for better mortgage rates and loan terms. While some loans accept lower scores, a higher score improves approval chances and reduces borrowing costs.

Q.2 What credit score is needed for a $250,000 house?

Ans: For a $250,000 house, lenders usually require a minimum credit score of 620 for conventional loans. FHA loans may accept scores as low as 500 with a 10% down payment. Your credit score impacts your interest rate and loan approval for this home price.

Q.3 Can I purchase a home with a 700 credit score?

Ans: Yes, a 700 credit score is good for buying a home. It often qualifies you for competitive mortgage rates and favorable loan terms. With a 700 score, you have access to conventional, FHA, and VA loans, increasing your homebuying options.

Q.4 What credit score is needed to buy a $300K house?

Ans: To buy a $300,000 house, lenders typically want a credit score of 620 or higher for conventional loans. FHA loans may allow lower scores, down to 500 with a larger down payment. Your credit affects your loan approval and interest rates for this price range.

Q.5 What credit score is needed to buy a house with no money down?

Ans: Buying a house with no money down often requires a VA or USDA loan. VA loans typically need a credit score of 620 or higher, while USDA loans usually require 580 or above. Both programs support eligible buyers without a down payment.

Q.6 How to quickly boost credit score?

Ans: To quickly boost your credit score, pay down credit card balances to lower your credit utilization, make all payments on time, avoid new credit applications, and dispute errors on your credit report. These steps can improve your score within a few months.

Q.7 How much salary for a $600,000 mortgage?

Ans: For a $600,000 mortgage, a gross annual income of about $150,000 to $180,000 is typically needed, assuming a 25%-28% housing expense ratio and good credit. Lenders consider debt-to-income ratio and other factors alongside salary for approval.

Q.8 What is an FHA loan for a house?

Ans: An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. It offers lower credit score requirements (as low as 500 with 10% down) and smaller down payments, making it ideal for first-time or lower-credit homebuyers.