Credit Score & Home Buying: What Credit Score Is Needed to Buy a House?

When it comes time to purchase a house, a potential buyer’s credit score plays a critical role in the lender’s decision. If you are asking yourself, ‘what is the perfect credit score?’ the answer is that it depends. 

Various factors are at play to determine the credit score needed to buy a house, and different mortgage products have their own unique credit score minimums attached. 

In addition, each of the three credit bureaus — Experian, TransUnion, and Equifax — maintain their consumer credit scores, culminating in multiple FICO scores, and lenders are likely to want to see all of them before making a credit decision. Prospective homebuyers could qualify to buy a home with a 640 credit score or even lower in some cases. 

What Is the Lowest Credit Score Needed to Buy a House?

Credit scores range from 300 to 850, as do FICO scores. Lenders are generally interested in all three of a prospective home buyer’s credit scores plus their FICO score attached to each report. 

Generally speaking, a 640 credit score or better should be high enough to qualify for one of the major mortgage options. However, for some mortgage products, a lower credit score will suffice. Keep in mind that the higher your credit score, the more attractive the interest rate attached to your mortgage is going to be. 

For potential homebuyers who want to have a low down payment advantage of 3.5% on a Federal Housing Administration (FHA) loan, the rock-bottom FICO needed to buy a house is approximately 580. 

However, the FHA doesn’t necessarily preclude consumers whose credit score is below that level from qualifying for a mortgage. Prospective homebuyers with a FICO score of less than 580 would need to make a 10% down payment to meet the agency’s loan standards. 

Types of Loans and Credit Scores Needed to Buy a House 

Beyond the FHA, other loan products have their own criteria for the lowest credit score needed to buy a house. 

VA and USDA Loans 

Veterans could use a U.S. Department of Veterans Affairs (VA) backed loan to purchase a new home or refinance an existing mortgage. However, the VA has not established a credit score threshold to qualify for a VA loan, as this is set on a lender by lender basis. 

Veterans could use the minimum credit score that most lenders adhere to, which is 620, as a gauge. The VA relies on its own “residual income guidelines” relative to a borrower’s debts and expenses to ensure veterans don’t take out a loan they can’t afford. 

The United States Department of Agriculture (USDA) has a host of criteria to qualify for a loan. However, similar to the VA, the USDA steers clear of a specific credit score requirement. 

Experian states that most lenders facilitating USDA-backed loans look for a credit score of at least 640. According to the Mortgage Research Center’s USDALoans.com, borrowers with a credit score of 640 or better could qualify for the USDA’s automated underwriting system. 

Potential borrowers with a credit score below that level might be able to qualify for the USDA’s manual underwriting standards. 

Conventional Loan

Conventional loans could either be conforming or non-conforming. Whether conforming or non-conforming determines whether it meets the Federal Housing Finance Agency’s (FHFA’s) criteria around income and debt, covering loan size.

The loan size limit as of 2022 is $647,200 but could be as high as $970,800 in pricier neighborhoods. 

To qualify for a conventional loan, you must have a minimum credit score of 620, whether purchasing a new home or refinancing a mortgage. Conventional loans are neither backed nor secured by the government. 

Jumbo Loan

Jumbo loans have more stringent standards considering that lenders inherit greater risk given the size of the loans. As the name suggests, jumbo loans are larger compared to other mortgages, meant for homes whose prices are on the higher side of the spectrum. 

Whether you are shopping in a pricey neighborhood, or a bidding war has driven up the price of a property, a jumbo loan could be the best product. 

Given the size of the loan, the credit standards are higher. We have good news if you are wondering, ‘Is 700 a good credit score?’ 

• The minimum credit score requirement for a mortgage up to $1 million is 700, and it goes up from there. 

• For a loan between $1 million and $1.5 million, you’ll need a credit score of at least 720. And for a mortgage between $1.5 million and $2 million, the credit score minimum rises to 740. 

FHA Loan

An FHA loan is one backed by the Federal Housing Administration. As alluded to above, there are credit tiers for this type of loan product based on the buyer’s amount toward the down payment. 

• You will need a FICO score of at least 580 plus a down payment of 3.5% of the purchase price. 

• You will need a FICO score between 570 and 579 plus a down payment of 10% of the purchase price. 

An FHA loan also has other requirements, including a debt-to-income ratio of less than 43%. The buyer is expected to purchase mortgage insurance, live in the home as their primary residence, and show proof of regular income and a job. 

Total Mortgage works with borrowers like you across the United States. Let Total Mortgage match you with one of our mortgage experts today. 

Understanding How Your Credit Score Is Determined 

Credit scores let lenders assess the lending risk associated with a prospective borrower. A FICO score further analyzes that data to determine the likelihood that a consumer will be able to repay their debts on time or late. 

The credit score reflects the information in each of the three credit reports, while a FICO score, in particular, is split into five separate groups with the following impacts:  

• Payment history (35%) 
• Amounts owed (30%) 
• Credit history length (15%) 
• New Credit (10%) 
• Credit mix (10%) 

What Is the Perfect Credit Score?

Many potential homebuyers want to know whether or not 680 is a good credit score or if 700 is a good credit score.  

And while it is probably high enough to qualify for a mortgage, there is still room for improvement. According to Experian, the top FICO score falls between 800 and 850, a range it deems “exceptional.” 

What Is a Fair Credit Score?

For potential homebuyers managing a 640 credit score, you should know that this FICO score falls into a range that is deemed fair, between 580 and 669. 

What Is a Low Credit Score?

A low FICO score falls below the 670 level, according to Experian. Let’s further drill down these scores into various categories according to the following table: 

Ways to Increase Your Credit Score

Prospective homebuyers whose credit score needs improvement or who are just looking to lock in the best possible interest rate on a mortgage could take specific steps to improve their credit score.

• Pay your debts on time: Payment history comprises 35% of your FICO score. 

• Reduce your credit card balances: The best credit scores boast a utilization rate of less than 10%. 

• Refrain from applying for other credit in the months before attempting to secure a mortgage.  

Find the Type of Loan That’s Best for You 

Total Mortgage is ready to help you with your mortgage needs. Whether you are buying a home, refinancing, or seeking a home equity loan, Total Mortgage can get you a free rate quote today.