To Buy A House What Is A Good Credit Score EXCLUSIVE
Many mortgage lenders require at least a 620 score for approval. However, those that offer loans backed by the Federal Housing Administration or the U.S. Department of Veterans Affairs might accept lower scores.
to buy a house what is a good credit score
As we said above, some lenders will require at least a 620 credit score, but many will set a higher minimum credit score. Lenders and loan backers also generally ask for a down payment of up to 20%, but no less than 3%, of the total property value.
You can use these numbers to help you determine how much house you can afford using the 28/36 Rule. This rule says your mortgage shouldn't cost more than 28% of your monthly pre-tax income, or 36% of your total debt from step one.
Learning how to build credit or raise a low score might seem daunting at first. The fastest ways to improve your credit score include credit repair or counseling, repaying debts and paying off credit cards to increase your available credit.
Credit scores typically range from 300 to 850, and borrowers within a certain range can qualify for mortgage loans. While you don't need a perfect 850 credit score to get the best mortgage rates, there are general credit score requirements you will need to meet in order to take out a mortgage.
However, the minimum credit score requirements vary based on the type of loan you take out and who insures the loan. Of our list below, conventional and jumbo loans aren't insured by the government and often have higher credit score requirements compared to government-backed loans, like VA loans.
Having a higher credit score makes a big difference in the amount of money you pay over the course of a loan. Borrowers with scores in the higher range can save thousands of dollars in interest payments over the life of a mortgage.
Conventional mortgage loans aren't insured by a government agency, like the U.S. Department of Veteran Affairs or the U.S. Department of Agriculture. Instead, these loans follow standards set by government-sponsored mortgage loan companies, Fannie Mae and Freddie Mac. Conventional loans may be secured by one of these companies or a private lender. These loans are more affordable and require a minimum 620 credit score. Down payment amounts vary.
A jumbo loan exceeds the maximum loan amount limits set by the Federal Housing Finance Agency. These loans aren't eligible to be insured by Fannie Mae or Freddie Mac, which means lenders take on more risk in the case you default on payments. Due to the larger loan amounts and riskier nature of these loans, borrowers need to meet higher credit score requirements of at least 680. Like conforming conventional loans, down payments vary.
An FHA loan is insured by the Federal Housing Administration and an option for borrowers who are deemed a higher risk due to low credit scores and little money to put toward a down payment. The credit score requirements differ based on how much money you plan to put down. Borrowers with higher credit scores can qualify to make a lower down payment.
A VA (Veteran Affairs) loan is insured by the U.S. Department of Veteran Affairs and designed for eligible members of the military community and their spouses. This type of loan doesn't require a down payment. And while the VA doesn't set credit score requirements, most lenders will require a minimum 620 credit score.
A USDA loan is insured by the U.S. Department of Agriculture and meant for low- to moderate-income home buyers. Similar to a VA loan, the USDA doesn't require a down payment and doesn't set a minimum credit score requirement. However, most lenders will require borrowers to have a 640 or greater credit score.
Most lenders require a 740 credit score or higher to qualify for the lowest mortgage interest rates, so anything above 740 is considered a very good score to buy a house. Armed with this score, you can secure a more affordable monthly payment and have more buying power when making purchase offers. Lenders often reward high-credit-score borrowers with fewer documentation requirements, a smoother approval process and exceptions for high debt-to-income (DTI) ratios.
Loans backed by government agencies like the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) cater to borrowers with credit scores as low as 500. Still, most homebuyers choose conventional loans to purchase homes, despite the stringent qualifying rules set by Fannie Mae and Freddie Mac, which require a minimum score of 620.
Get approved with more total debt. Lenders measure your DTI ratio by dividing your total debt by your gross income. Although most lending programs cap your DTI at 45%, a high credit score may allow them to make exceptions up to 50%.
Afford a more expensive home. Your credit score affects both your interest rate and mortgage payment, so it has an impact on how much house you can afford. Try our home affordability calculator to see the difference a few percentage points can make on the home price you qualify for.
The table below shows these numbers in action as we compare the interest rate, monthly payment and maximum home price you can buy with a higher and lower conventional credit score. The example also assumes you earn $85,000 per year and have $750 per month in nonmortgage debt.
Credit scoreInterest rateMonthly paymentMaximum home price 7405.66%$2,295*$363,014 6206.62%$2,295*$338,752 *Includes annual homeowners insurance premium of $800 and property taxes of $3,640 per year.
Pay down your debt to reduce your DTI. Another way to offset low credit scores is to get rid of as much debt as possible. Mortgage underwriters may look more favorably on an application with a very low DTI ratio, even if your credit history has some bumps in it.
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable rate mortgages (ARMs). Our mortgage loan officers can help you figure out what mortgage options would best fit your situation and lifestyle.
In short, this score matters, especially in real estate. It can help you qualify for a home, a car loan, and so much more. Which brings us to an important question: What type of average credit score is best to buy a house?
The typical credit score range can fall anywhere from 300 to 850, with 850 being a perfect credit score. While each creditor might have subtle differences in what they deem a good or great score, in general an excellent credit score is anything from 750 to 850. A good credit score is from 700 to 749; a fair credit score, 650 to 699. A credit score lower than 650 is deemed poor, meaning your credit history has had some rough patches.
Generally speaking, a 640 credit score or higher should be enough to qualify for one of the major mortgage options. For some mortgage products, however, a lower credit score will suffice. Prospective homebuyers with credit scores around 580 can take advantage of Federal Housing Administration (FHA) loans, which offer more lenient requirements.
Veterans may use a U.S. Department of Veterans Affairs (VA) 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.
Credit scores let lenders assess the 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 minimum credit score need to buy a house can vary based on the type of loan. For an FHA loan, for example, it's possible to qualify for a mortgage with a credit score as low as 500. Other types of home loans, however, might require a credit score of 640 or better."}},"@type": "Question","name": "How Much Money Do I Need To Put Down on a Home?","acceptedAnswer": "@type": "Answer","text": "You'll need to put down at least 20% on a conventional home loan if you want to avoid paying private mortgage insurance (PMI). FHA loans have a down payment requirement as low as 3.5% while USDA and VA loans have no down payment requirement at all.","@type": "Question","name": "What Documents Do I Need To Apply for a Mortgage?","acceptedAnswer": "@type": "Answer","text": "The kinds of documents you'll need to apply for a home loan can include pay stubs, tax returns, bank statements, and investment account statements. The lender should ask for consent to pull your credit reports and credit scores as well.","@type": "Question","name": "How Much Money Will I Need for Closing Costs?","acceptedAnswer": "@type": "Answer","text": "Closing costs for a home purchase typically range from 2% to 5% of the home's purchase price. The more expensive the home, the more money you'll likely need to finalize the closing."]}]}] Investing Stocks Bonds Fixed Income Mutual Funds ETFs Options 401(k) Roth IRA Fundamental Analysis Technical Analysis Markets View All Simulator Login / Portfolio Trade Research My Games Leaderboard Economy Government Policy Monetary Policy Fiscal Policy View All Personal Finance Financial Literacy Retirement Budgeting Saving Taxes Home Ownership View All News Markets Companies Earnings Economy Crypto Personal Finance Government View All Reviews Best Online Brokers Best Life Insurance Companies Best CD Rates Best Savings Accounts Best Personal Loans Best Credit Repair Companies Best Mortgage Rates Best Auto Loan Rates Best Credit Cards View All Academy Investing for Beginners Trading for Beginners Become a Day Trader Technical Analysis All Investing Courses All Trading Courses View All TradeSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.InvestingInvesting Stocks Bonds Fixed Income Mutual Funds ETFs Options 401(k) Roth IRA Fundamental Analysis Technical Analysis Markets View All SimulatorSimulator Login / Portfolio Trade Research My Games Leaderboard EconomyEconomy Government Policy Monetary Policy Fiscal Policy View All Personal FinancePersonal Finance Financial Literacy Retirement Budgeting Saving Taxes Home Ownership View All NewsNews Markets Companies Earnings Economy Crypto Personal Finance Government View All ReviewsReviews Best Online Brokers Best Life Insurance Companies Best CD Rates Best Savings Accounts Best Personal Loans Best Credit Repair Companies Best Mortgage Rates Best Auto Loan Rates Best Credit Cards View All AcademyAcademy Investing for Beginners Trading for Beginners Become a Day Trader Technical Analysis All Investing Courses All Trading Courses View All Financial Terms Newsletter About Us Follow Us Facebook Instagram LinkedIn TikTok Twitter YouTube Table of ContentsExpandTable of ContentsRequirements To Buy a HouseFrequently Asked QuestionsThe Bottom LinePersonal FinanceMortgageSix Requirements To Buy a HouseByTerri Williams Full Bio LinkedIn Twitter Terri Williams is a business, digital ethics, real estate, mortgage, and home improvement writer featured in several major brands.Learn about our editorial policiesUpdated March 14, 2022Reviewed byEbony Howard Reviewed byEbony HowardFull Bio LinkedIn Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.Learn about our Financial Review BoardFact checked by 041b061a72