Getting a mortgage to buy a home requires showing you can repay the money that you borrow. One of the key ways that lenders judge your ability to pay back a loan is by checking your credit.
Mortgage lenders use your credit score and other information on your credit report to decide whether to offer you a loan, and at what interest rate. Generally, having a higher score helps borrowers save money, because it increases the likelihood of receiving a lower rate from the lender. But there are options for homebuyers with lower scores.
So, what kind of credit scores are needed to get a mortgage? Here’s what you need to know about minimum credit score requirements:
- What Is a Credit Score?
- Understanding How Credit Scores Are Calculated
- Minimum Credit Scores for Different Types of Mortgages
- What If Your Credit Score Isn’t High Enough?
- How To Increase Your Credit Score Before Buying a House
- Minimum Credit Score FAQ
- The Bottom Line: The Minimum Credit Score To Buy a House
What Is a Credit Score?
A credit score is a numerical rating between 300 and 850 that represents a borrower’s creditworthiness, or how willing a lender is to trust them to repay debt.
A higher score indicates that a borrower is more likely to make payments on time, which means they pose a lower risk to lenders. Borrowers with higher scores tend to get better interest rates and have more loan options available to them.
Understanding How Credit Scores Are Calculated
Lenders use credit scores calculated by companies such as FICO and VantageScore, which create credit scoring models. These scoring models are based on consumer credit reports from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Each agency typically has similar but not identical versions of your credit reports, so your score can vary depending on which scoring model and report were used.
According to FICO, 90% of top lenders use its scores. FICO scores are calculated based on these factors:
- Payment history (35%). This shows evidence of repayment, or how you’ve made loan payments in the past.
- Amounts owed (30%). Amounts owed includes the total amount of debt you have, as well as how much of your available credit you’re using on revolving accounts like credit cards.
- Length of credit history (15%). The credit scoring model considers the ages of your oldest and newest accounts, the average age of your accounts, and more.
- Credit mix (10%). FICO assesses your ability to manage different types of credit accounts.
- New credit (10%). This includes the number of new accounts you have, how many times a lender has pulled your credit recently, and the age of your newest account.
Your credit score doesn’t consider information such as your race, religion, national origin, sex, marital status, age, employment history, or location.
The biggest credit score factors
Together, payment history and amounts owed account for about two-thirds of your credit score.
Be sure to maintain the different accounts that can contribute to your payment history, such as credit cards, car loans, and student loans. If any payments are past due, FICO will examine the number of overdue items, how long you’ve been late on the payments, and the amounts of money owed.
For revolving accounts, having a low credit utilization ratio has a positive effect on your credit score. In some cases, FICO says it’s better than not using your available credit at all. For installment loans like car loans, paying them down shows that you can reliably handle debt.
Checking your credit score
There are different ways to check your credit. Some credit card issuers provide access to your credit reports as a customer benefit, while other services help you monitor changes to your reports. You can also receive free copies of your credit reports from AnnualCreditReport.com.
Minimum Credit Scores for Different Types of Mortgages
Many types of mortgages — though not all — have minimum credit score requirements.
Conventional loans aren’t insured by any government agency. There are two types of conventional mortgages: conforming and nonconforming.
A conforming loan follows requirements set by the federal government as well as Fannie Mae and Freddie Mac, two government-sponsored enterprises that help lenders package and sell mortgages to investors. Borrowers typically need a credit score of at least 620 to get a conforming mortgage, which is the most common type of loan.
Since nonconforming loans don’t qualify for backing by Fannie and Freddie, the rules vary by lender.
A type of nonconforming mortgage, jumbo loans exceed the conforming loan limits set by the federal government. Lenders can establish their own minimum credit score requirements, but borrowers typically need scores of 680 or higher.
FHA loans are mortgages insured by the Federal Housing Administration. Generally, they have more-lenient credit score requirements than conventional loans.
Your credit score determines the down payment required for an FHA loan. If your credit score is at least 580, then you can make a down payment of 3.5%. If your credit score is between 500 and 579, then you must put at least 10% down. Borrowers with a credit score below 500 aren’t eligible for an FHA loan.
Generally, borrowers eligible for VA loans include:
- Veterans who meet service length requirements.
- Active-duty service members who have served a minimum period.
- Certain reservists or National Guard members.
- Certain surviving spouses.
USDA loans are backed by the Department of Agriculture, and offered to low- and moderate-income borrowers who want to purchase a home in eligible rural areas. There isn’t a minimum credit score required to get a USDA mortgage, but borrowers with a score of at least 640 can qualify for a streamlined credit analysis during the underwriting process.
What If Your Credit Score Isn’t High Enough?
If you’re looking to buy a home but won’t qualify for a mortgage based on your credit score, there are a few things you can try.
One option is having a trusted co-signer on your mortgage. A co-signer agrees to assume responsibility for the loan if you stop repaying it, and their credit can suffer damage if you make late payments. Applying with a co-signer who has a strong credit profile can help increase your odds of getting approved and receiving more-favorable terms.
Another option is to save for a bigger down payment. Putting more money down means less risk to the lender, which can help make you a more appealing candidate for a mortgage.
While it’s important to meet the minimum credit score requirement for the loan you want, aiming higher increases your chances of getting a lower interest rate. You may choose to hold off on applying until you’ve improved your credit score to the point where you’re eligible for better rates.
How To Increase Your Credit Score Before Buying a House
Here are several ways to improve your credit score:
- Dispute any errors on your credit report. If the incorrect information is negative, then removing it can increase your credit score. However, keep in mind that there could be other factors preventing an immediate boost in your score.
- Lower your credit utilization ratio. Maxing out your credit cards can negatively affect your score. Paying down your debts will not only lower your credit utilization ratio, but also reduce your debt-to-income ratio — another way lenders evaluate your ability to repay debt — which can make you an even more appealing applicant.
- Hold off on applying for new credit. “Applying for a lot of credit cards puts a hard inquiry on your credit report,” says Ryan Fitzgerald, owner of Uphomes, a real estate company based in Charlotte, North Carolina. “Too many hard inquiries can affect your credit score negatively.” These hard inquiries remain on your credit report for up to two years.
- Receive credit for your bill payment history. Free tools like Experian Boost can help report your positive payment history for utilities, phone bills, and streaming services. If you choose to use these tools, make sure to vet them properly. There are companies that claim to offer similar services, and the industry is a common target for scammers.
- Ask your property manager to report your rental payment history. Information about your on-time rent payments isn’t automatically provided to credit reporting agencies, so purposefully including it can help build your credit.
Minimum Credit Score FAQ
Here are some frequently asked questions when it comes to minimum credit scores.
The higher your credit score, the more likely you’ll be eligible for lower interest rates. According to FICO, a score of 670 to 739 is considered good, 740 to 799 is very good, and 800 or above is exceptional.
Yes, it’s possible to buy a home with poor credit. For example, the minimum credit score requirement for FHA loans is 500.
You can buy a home with no credit, but the process will likely be challenging. You’ll have more options if you wait and build your credit first.
The Bottom Line: The Minimum Credit Score To Buy a House
Many lenders have credit score requirements that borrowers must meet before taking out a mortgage. Though it’s important to understand a loan’s minimum requirements, having a higher score can help borrowers save money in the form of lower interest rates. There are steps that you could take to boost your credit score, but they usually pay off over time — so make sure to factor that into your homebuying plans.