Financing your house with a mortgage probably means you just signed up to repay hundreds of thousands of dollars. For this reason, lenders won't lend to just any borrower. You can expect a lender to closely review your financial health, including your credit score, before giving the stamp of approval. Here's what credit score is needed to buy a house, plus ways you can help improve your chances of qualifying for a mortgage.
What credit score do you need to buy a house?
You generally need a credit score of at least 620 to qualify for a loan to buy a home. Still, "Minimum credit scores for different programs can vary quite a bit based on the specific terms and conditions, with some requiring 640, some 660, and some even 720," says Sean Valiton, head of residential lending for Leader Bank in Arlington, Massachusetts.1
Your FICO credit score, which ranges from 300 to 850, represents how well you've managed credit and loans in the past. You can check your score in a few different ways, including possibly by looking at a recent credit card bill statement or on your bank's or credit card issuer's website or app. The higher the score, the more trustworthy a borrower you are perceived to be—and the more likely you are to have your mortgage application approved at a lower interest rate.
Some lenders, however, might work with someone with a lower credit score if they are stronger in other areas, like being able to make a large down payment. The reverse is true too: "Even if you have a credit score that meets the minimum for a particular product, that may not guarantee you will be approved for that mortgage," since other elements, like your employment and income history, are considered too, says Valiton.
That minimum credit score could be lower or higher depending not only on the lender but also on the mortgage type, which includes the following:
- Conventional loans: These loans generally require a minimum credit score of at least 620, according to Fannie Mae, a government-sponsored enterprise that acquires mortgages offered by lenders.
- FHA loans: Federal Housing Administration (FHA) loans are insured by the federal government and have looser credit and down payment requirements. You typically need a minimum credit score of 580, but you could get approved with a score as low as 500 if you make a 10% down payment. Just know you have to pay mortgage insurance premiums with this type of loan.
- VA loans: Though the Department of Veterans Affairs (VA) isn't a lender itself, it helps make it easier for veterans, active service members, and eligible surviving spouses to get mortgages by guaranteeing a portion of the loan. There's no minimum credit score. Instead, each lender sets its own minimum, which is typically around 620 (unless the borrower can make a large down payment).
- USDA loans: The United States Department of Agriculture (USDA) guarantees mortgages for certain homes in eligible rural areas. The USDA doesn't have a minimum credit score requirement, but the lenders it works with do, usually requiring a score of 640 or higher.
What is a good credit score to buy a house?
A good credit score to buy a house is at least 700, suggests Valiton. "A homeowner can secure solid mortgage terms with a credit score of 700 or higher," he adds. "740 is typically the score necessary to qualify for the ‘best' rate, but there are products and programs out there that will improve interest rates for FICO credit scores above 760 or 780."
If your credit score is below 700, you might be offered higher interest rates on a loan. Improving your score could help, though. "In some cases, a 10-point improvement to a credit score could lead to a [slightly] lower rate, but it is not guaranteed," says Valiton, reiterating that a credit score is just one of many factors lenders consider when they decide whether to offer someone a mortgage and with what terms.
Another factor lenders consider is your debt-to-income ratio: That's your monthly debt obligations divided by your monthly income. Fidelity suggests trying to limit debt payments to 36% of your income.
How can you raise your credit score before you buy a house?
You could potentially improve your credit score by trying these 5 strategies:
1. Pay down your debt
Paying off your credit card balances can make a big difference in your score, especially if you're close to your credit limit. Maxing out your cards could lower your score; paying off your cards could raise it.
2. Increase your credit limits and maintain old accounts
About one-third of your FICO credit score is determined by how much credit you use from the total amount you have—that's called your credit utilization ratio. Requesting a credit increase (in addition to paying down debt) can free up more of your credit line. A good guideline: Keep your total debt below 30% of your total credit limit. While it might be tempting to close old accounts, that can reduce your total available credit—and hurt your credit score.
3. Don't apply for new credit accounts
Avoid applying for new credit cards and loans in the run-up to your mortgage application. It will likely create a hard inquiry on your credit report, which could temporarily reduce your score.
4. Keep up with payments
A late payment could stay on your credit report for 7 years and potentially ding your credit score, according to the credit bureau Experian. If you've missed payments in the past, start paying future bills on time as soon as possible to begin repairing the damage.
5. Check your credit report for mistakes
"We recommend anyone considering buying a home review their credit report to check for inaccuracies," says Valiton. You can get a free copy of your credit report at AnnualCreditReport.com. Look for mistakes that could hurt your score, such as a report of a delinquent bill you actually paid. Also check for lines of credit you never opened, which could suggest your identity was stolen. The next step is disputing any errors, to have them removed from your credit report.
How to buy a house with a lower credit score
Consider these tips if you're applying for a mortgage without a top-tier score:
Speak with multiple lenders
Shopping around and comparing rates and eligibility requirements can go a long way. One lender might be more accepting of your position and offer a better rate. Be ready to discuss your financials and explain why you'd be a good borrower, even with a lower credit score. Having reliable income and a sizable down payment could help your case.
Consider an FHA loan
If you have steady employment, strong income, and a down payment of at least 10%, you might qualify for an FHA loan. Again, these government-backed mortgages have lower credit requirements, but you'll have to cover mortgage insurance costs. This can be removed if you put down 10% or more and make on-time payments for 11 years.
Plan to refinance
You might qualify for a mortgage with a lower credit score, but you'll likely get a higher interest rate than someone with better credit. When your credit score improves, you could potentially refinance to a better rate and lower monthly payment, though your loan term would restart.
Consider a co-signer
If you can't qualify on your own, you could ask someone close to you to co-sign the mortgage. You're essentially asking them to vouch for you—and take on the mortgage if you default on your payments. Make sure to keep up with your mortgage payments: Otherwise, you'll damage the co-signer's credit and your own.
What else to consider before you buy a house
There are many other factors to keep in mind before you apply for a mortgage:
Understand your budget
Calculate how much you can afford when you add up your home loan payment, interest, taxes, home insurance, and any mortgage insurance. Lenders generally prefer for these expenses to be less than or equal to 25% to 28% of your gross monthly income. So if you (and anyone you're sharing these payments with) earn $10,000 a month, you could probably afford up to $2,800 a month for housing costs.
Prepare for emergency expenses
As a homeowner, you're responsible for repairs and maintenance. These can be unexpected. Aim to have emergency savings of at least 3 to 6 months' worth of expenses so you can cover repairs as they come up.
Know your market
Research your local housing market and pricing trends. An experienced real estate agent can provide insights and help you decide if now is the right time to buy a house—and where.
Buy only for an extended stay
Between your down payment, closing costs, and other expenses, buying a home is a huge investment. That's why it tends to be better to buy only if you plan on staying put for more than just a few years.
Connect with a financial professional
Finally, consider speaking with a financial professional as you prepare to buy a home, so you can set your budget and get your finances in the best shape possible for the loan application.