What’s a good credit score to buy a house?
The average credit score in the U.S. is about 714, according to Experian. That’s well within the range of what mortgage lenders consider to be “good.” In fact, most lenders see any FICO score above 680 as a good credit score to buy a house.
Even if your credit is below the 680 mark, you may still be able to buy. It’s often possible to get a home loan with credit scores of 580 and up. So if your credit falls below the “good” mark, it’s still worth checking your home buying options.
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How mortgage lenders view credit scores
For mortgage lenders, credit scores fall into several categories or “tiers.” These credit tiers indicate the amount of risk associated with extending credit to home buyers. Most lenders use the following ranges to classify credit scores.
FICO credit score tiers for home buyers:
- 740 or higher: Excellent
- 680-739: Great
- 620-679: Good
- 580-619: Fair
- Below 580: Poor
As you can see, any score above 620 is technically considered “good” credit. Although scores of 680 and up usually see lower interest rates and other benefits.
That doesn’t mean only good-credit borrowers can buy homes. There are mortgage loan options available for those in the “fair” and sometimes even “poor” credit ranges. So having a credit score that’s not “good” won’t necessarily stop you from buying a house.
How a good credit score affects home buying
The best way for lenders to predict whether you’ll pay your mortgage on time is by looking at how you’ve managed your debts in the past. Good credit scores communicate to lenders that you have a track record for properly managing your debts. For this reason, the higher your score, the better your chances of qualifying for a mortgage.
In addition to having better odds of qualifying, there are other perks to having a good credit score when buying a house. These include:
- Better interest rates
- Wider variety of loan programs
- Lower private mortgage insurance (PMI) rates
- Lower overall loan costs
All in all, lenders view borrowers with good credit as a lower risk. Banks can offer lower rates and charges for good-credit home buyers because there’s less probability they’ll lose money on the loan.
As a buyer, having good credit could save you thousands of dollars in interest and PMI charges in the long run. So if your credit is on the lower end, it may be worth taking steps to improve your score before you apply to buy a home.
Credit score requirements by loan program
Home buyers and homeowners have a number of different mortgage programs from which to choose. Each one has its own minimum credit score requirements. In addition, each lender may set its own credit score requirement based on its tolerance for risk.
While a score at or above 740 is ideal from your lender’s standpoint, you may qualify for a mortgage with a substantially lower credit score.
Conventional loan: 620
Conventional loans typically have the best mortgage rates and terms for good-credit borrowers. With a conventional loan, your score has a direct impact on your interest rate and loan fees. So the better your credit is, the cheaper your mortgage loan will be.
Most lenders require a minimum credit score of 620 for a conventional mortgage and at least a 3% down payment. Some require higher scores. Conventional loans, also known as “conforming loans,” are mortgages that meet Fannie Mae and Freddie Mac’s guidelines. Conventional loans are the most common type of mortgage.
FHA loan: 580
FHA loans were originally designed to help low-to-moderate income mortgage borrowers, allowing for just 3.5% down, lower credit score requirements, and higher debt-to-income ratios. Technically, the Federal Housing Administration allows credit scores starting at 500-579 with 10% down. However, few lenders start at 500 in practice. Most FHA lenders want to see minimum scores between 580 and 600.
VA loan: 580
Backed by the Department of Veteran Affairs, VA loans are known to have some of the lowest mortgage rates available. In addition to flexible lending terms, VA loans require no down payment. The VA doesn’t have a set minimum score requirement. However, most lenders set their own score requirements that typically range from 580 to 600.
USDA loan: 640
U.S. Department of Agriculture loans are meant for properties located in rural areas. USDA loans offer 100% financing with lower interest rates as compared to conventional loans. Although the USDA does not set minimum credit score requirements, most lenders look for a minimum score of 620-640.
Jumbo loan: 700
Jumbo loans are mortgages that exceed conforming loan limits — currently $ in most parts of the U.S. Some lenders offer jumbo loans to mortgage borrowers with credit scores as low as 680, but most require 700 or higher.
Jumbo loans are “non-conforming mortgages,” meaning they don’t conform to Fannie Mae and Freddie Mac’s guidelines. So lenders get to set their own jumbo loan requirements, and things like minimum credit score and minimum down payment can vary a lot from one bank to the next.
Check your home buying eligibility
Most people know how important credit scores are when it comes to buying a house. But credit isn’t the only factor lenders consider when approving your home loan. They also look closely at your debt-to-income ratio, employment history, down payment, and any additional savings or investments. If your application looks strong in these other areas, it can help make up for a lower (or non-existent) credit score.
Not sure about your qualifications? Check with a lender to find out if your credit score and full financial picture make you eligible to buy a house.