Credit scores are crucial to the homebuying process. Not only does your FICO score determine if you can qualify for a loan in the first place, but it will also have an impact on your mortgage terms.
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What credit score is needed to buy a house?
You don’t need flawless credit to get a mortgage. In some cases, scores can be in the 500s. But because credit scores estimate the risk that you won’t repay the loan, potential lenders will reward a higher score with more choices and lower interest rates.
Mortgage loan originator Chris Hauber of Denver said he suggests would-be buyers wait until they have scores of at least 620. Higher is better, he says, and those with scores of 740 or more will get the lowest interest rates.
Credit score mortgage calculator
Loan options by credit score
300 – 499: Few mortgage options
Having bad credit — or no credit — means you’re unlikely to get a mortgage unless someone is willing to help out.
“Their only option would be to have a friend — or more likely a family member — purchase the home, add them to title, then try to refinance into their name(s) when credit scores improve sufficiently,” says Ted Rood, a senior loan officer in St. Louis.
» MORE: How to strengthen your credit score
500 – 579: Poor credit score mortgage programs
If you have a credit score in the 500s, it’s likely that your best choice for a home loan will be one insured by the Federal Housing Administration. But with a credit rating of 500 to 579, be prepared to put 10% down.
“Someone with a 500 credit score is likely to have some combination of collection accounts, liens and judgments,” Joe Parsons, a senior loan officer with PFS Funding in Dublin, California, says. “Even though FHA will insure a loan with a 500 score, the lender will require that collections, judgments and most liens be paid off before closing.”
David Konzen, a real estate agent in Marietta, Georgia, said he views scores of less than 580 as a definite signal to work on your credit. Generally, real estate agents will send clients to lenders to see if they can prequalify for a loan. Those who don’t like the terms they’re seeing can then try to qualify for an FHA loan or work to shore up their credit.
580 – 619: Some low down payment programs
FHA loans also allow down payments as low as 3.5%, but to qualify, you’ll need a FICO score of 580 or better. Some lenders will also authorize mortgages guaranteed by the Department of Veterans Affairs, or VA home loans, at this level
620 – 699: Government-backed and conventional options
Potential home buyers with credit scores of at least 620 have more options. VA-backed mortgages definitely come into play for active-duty military, veterans and eligible spouses. That can mean you won’t make a down payment and you’ll pay more-favorable interest rates.
USDA-backed loans for rural properties are also available to those with a minimum 640 score.
FHA loans for remodeling, known as 203(k) loans, are underwritten at this FICO score level.
Most importantly, conventional loans — which aren’t backed by a government agency like the FHA, the VA or the Agriculture Department — are available to qualified borrowers with credit scores of 620 or higher.
700 – 739: Good credit score mortgage programs
Home buyers with credit scores of 700 or higher qualify for better interest rates. Using a mortgage calculator can make clear how lower rates make a big difference.
At this credit level, you’ll also find lenders who will consider you for higher value homes requiring “jumbo” mortgages.
740 and above: The best interest rates
With a FICO score of 740 or higher, you’re likely to get the most favorable interest rate available, especially on a conforming (non-jumbo) conventional loan.
Conventional loans tend to require higher scores. FICO scores for home buyers using conventional loans averaged 752 for the 12-month period ending June 2019, according to a July 2019 Ellie Mae report. Refinances averaged 734 for the same period.
Borrowers with higher scores also earn a break in the cost of private mortgage insurance (PMI), which is required if they make down payments of less than 20%. Parsons says with a 10% down payment, a 620 borrower will pay 1.1% in PMI. A 760 FICO borrower would pay just 0.30%, he says.
How to strengthen your credit score to buy a house
If your score won’t get you the best deals on a mortgage, it might make sense to keep renting for a while and use the time to polish your credit profile. Here’s how:
Keep credit card balances low: Experts recommend you use no more than 30% of the limit on any credit card, and much lower is much better. How much of your available credit you are using is called your credit utilization, and it’s the second-biggest factor in your score.
Check your credit reports: Look for score-lowering errors. If you find something, dispute it. You are entitled to at least one free credit report from each of the three credit bureaus, Experian, Equifax and TransUnion, every 12 months.
Keep credit cards open: Closing a card reduces the amount of available credit you have, which can send your credit utilization up and ding your score.
Look at your credit mix: If you have only credit cards or only installment loans, consider adding the other type so you can demonstrate a good payment record across diverse credit lines. If you’re trying to build up a thin credit file, you could consider a secured credit card or a credit-builder loan.
Check your credit and monitor your progress
If your credit is not as strong as you would like, work on building it. Check your progress with a free score; some credit cards and many personal finance websites offer them. (NerdWallet offers a free credit score that updates weekly.)
Free credit scores often are VantageScores, a competitor to FICO. Either type of score can be used to track your progress — they both emphasize the same factors, with slight differences in weighting, so they tend to move in tandem.
Mortgage lenders check older versions of the FICO score (FICO 2, 4 and 5). If you want to see where you stand on those so you know exactly what lenders will see, you’ll have to purchase a comprehensive FICO report. You can do that at myFICO.com, then cancel the monthly service rather than pay an ongoing fee. Be sure to cancel before the next billing cycle starts; the monthly subscription fee will not be prorated.
However, if you’re near or in the excellent credit score range on a free score source, you don’t need to pay to check your FICO scores. You almost certainly have good enough credit to qualify for the best rates.