Credit score requirements to buy a house: 2022 Guide
What credit score is needed to buy a house?
You don’t need perfect credit to buy a house. In fact, you might not even need good credit.
The minimum credit score to get a mortgage is 580, which is considered only “fair.” And with a score of 620 or above, you have access to most home loan programs.
But mortgage lenders will look beyond your credit score.
They also look at your credit report, debts, and down payment. The stronger you are in these areas, the more likely you are to qualify with a lower credit score.
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Credit score requirements to buy a house
The credit score needed to buy a house depends on the type of loan you apply for.
Minimum credit requirements for the five major loan options range from 580 to 680.
- Conventional loan: 620 minimum FICO score
- FHA loan: 580 minimum FICO score
- VA loan: 620 minimum score is typical (varies by lender)
- USDA loan: 640 minimum FICO score
- Jumbo loan: 680 minimum FICO score
Note that FHA loans can allow credit scores as low as 500. But if your score is below 580, you’d need a 10% down payment to qualify. Borrowers with credit scores above 580 need only 3.5% down.
The downside to lower credit is that you’ll pay a higher interest rate. But many buyers who have lower scores buy now and refinance to a lower interest rate later, after their credit improves.
What is a good credit score to buy a house?
Although it’s possible to buy a house with only fair credit, you’ll get a lower mortgage rate and better loan terms with a higher score.
To a mortgage lender, FICO scores of 670 and above are considered ‘good.’ Although the best interest rates typically go to borrowers with credit scores of 720 or higher.
If you want to see how your credit score ranks, take a look at FICO’s credit score tiers. FICO is the scoring model used by mainstream mortgage lenders.
FICO scores for mortgage:
- Excellent credit: 800-850
- Very good credit: 740-799
- Good credit: 670-739
- Fair credit: 580-669
- Poor credit: 300-579
Fortunately, you don’t need an “exceptional” score in the 800 to 850 range to get a prime mortgage rate. Most home buyers don’t have credit anywhere near that high.
In fact, the average FICO credit score for closed mortgage loans in 2021 was just under 740. And it’s generally possible to buy a house with a score of 620 (or even lower in some cases).
Mortgage lenders understand that perfect credit is not the norm, and they aren’t expecting sky-high scores.
Other requirements to buy a house
There’s more to know than just credit minimums. After all, underwriting guidelines comprise hundreds of pages.
In addition to credit scores, lenders evaluate borrowers based on:
- Down payment: Most loan programs require at least 3% down. (USDA loans and VA loans allow zero down, but not everyone qualifies)
- Income and employment history: Most lenders want to see at least two years of steady income and employment
- Savings: You’ll need cash to cover the down payment and closing costs; sometimes you’ll need to have cash reserves left over after paying these costs
- Existing debts: Your debt-to-income ratio compares preexisting debts like student loans, auto loans, and credit card minimum payments against your monthly gross income. The lower your DTI, the better
Compensating factors can help if you have bad credit
You don’t need perfect finances across the board to secure mortgage approval. You can often qualify if you’re weak in one area — like credit score — but stronger in other parts of your financial life. These offsets are known as “compensating factors.”
If your credit score is weak but you have a stable income, a lot in savings, and a manageable debt load, you’re more likely to get mortgage-approved.
Similarly, you have a good chance at loan approval if you have a higher credit score but you’re only average in those other factors.
The key is to understand that lenders look at your personal finances as a whole — not just your credit score.
Credit scores needed for each home loan
Your credit score will help determine which home loan program(s) you might qualify for.
FHA loans are typically the best option for borrowers with low credit (in the 500-620 range), while a conforming loan is often cheaper if you have good or great credit.
Here’s what you should know about credit score requirements for each of the major loan programs.
FHA loans (score: 580)
FHA loans allow the lowest credit score of any loan program.
Most mortgage lenders accept FICO scores of 580 and above for an FHA loan. And you only need 3.5% down to buy a house with this program.
Some lenders even allow credit scores of 500-579 under the FHA program, though you’ll need a 10% down payment if your score is in that range. And the lenders offering 500-FICO-score FHA loans are few and far between.
FHA loans are insured by the Federal Housing Administration. This insurance protects mortgage lenders, making it possible for them to lend to borrowers with lower credit scores and smaller down payments.
The downside? FHA loans require upfront mortgage insurance as well as annual mortgage insurance premium that often lasts the entire life of the loan.
Conventional conforming loans (score: 620)
Conventional loans also allow a modest credit score of 620 with a down payment of just 3 percent.
However, the cost of private mortgage insurance (PMI) can make conventional loans unattractive for lower-credit borrowers with less than 20% down.
The cost of PMI is based on your down payment and credit score. For conventional borrowers with 3-5% down and a credit score in the low 600s, PMI rates can be relatively high.
As a result, FHA financing can sometimes be cheaper for borrowers with credit in the fair credit score range.
VA loans (score: 580-620)
The Department of Veterans Affairs, which regulates VA loans, does not set a minimum credit score. That’s up to individual lenders. Most require a minimum FICO score of at least 620 for a VA loan, though some will go as low as 580.
To qualify for a VA loan, you’ll need to be an active-duty service member, veteran, surviving spouse, or member of the Reserves or National Guard.
VA-eligible borrowers benefit from ultra-low mortgage rates and do not have to pay ongoing PMI (only a one-time, upfront funding fee).
USDA loans (score: 640)
The zero-down USDA loan program has no official minimum credit score. But most lenders require a FICO score of at least 640 to qualify.
In addition, you must make a low-to-moderate income for your area. And the home you’re buying has to be in an area deemed “rural” by the U.S. Department of Agriculture.
Jumbo loans (score: 680-700)
A jumbo loan is any mortgage that exceeds the conforming loan limit, which is currently $ for a single-family home in most areas.
Since you’re borrowing more money with a jumbo loan, lenders require a higher credit score. Each company gets to set its own jumbo loan requirements, but many want to see a FICO score of at least 700-720 (though some may go as low as 680).
You’ll typically also need a down payment of 10-20% for a jumbo loan. Again, this varies by lender.
Credit score requirements vary by lender
Most mortgage programs are regulated by a central agency; for instance, Freddie Mac and Fannie Mae regulate conforming loans while the Federal Housing Administration regulates FHA loans.
These agencies set the minimum guidelines to qualify for each loan program. But lenders, if they want, can impose stricter requirements on borrowers. These are known as “overlays.”
For example, FHA technically allows FICO scores as low as 500. But most lenders won’t go below 580, and some even require a score of 620 for an FHA loan.
According to Fannie Mae, the majority of mortgage lenders apply mortgage overlays. The most common overlay relates to credit scores.
This is why it’s smart to re-apply for a mortgage if you’ve recently been denied. Your loan may have been turned down, but that denial could be because of an overlay. There’s a chance you could be approved by a lender with looser guidelines.
Apply at a different bank, you may get better results.
How mortgage lenders pull credit
When you apply for a mortgage, lenders pull your credit report from all three major credit bureaus: Transunion, Equifax, and Experian.
Whether you get approved for the loan — and the terms of your loan — will depend on the result of those reports.
Lenders qualify you based on your “middle” credit score.
For example, if your scores are 720, 740, and 750, the lender will use 740 as your FICO. If your scores are 630, 690, and 690, the lender will use 690 as your FICO.
When you apply with a spouse or co-borrower, the lender will use the lower of the two applicants’ middle credit scores.
Expect each bureau to show a different FICO for you, since each will have slightly different information about you. And, expect your mortgage FICO score to be lower than the VantageScore you’ll see in most free credit reporting apps.
In all cases, you will need to show at least one account which has been reporting a payment history for at least six months in order for the bureaus to have enough data to calculate a score.
Credit score versus credit history
Your credit score reflects, in a single number, your reliability as a borrower. This summary of your credit history helps simplify borrowing, but your score doesn’t tell the whole story.
Credit scores can be low for a lot of reasons. Maybe you prefer paying cash overusing credit, maybe you’re too young to have a credit history, or perhaps you carry high balances.
Mortgage lenders understand a low credit score doesn’t always mean you’re high risk. That’s why they look at your entire credit history — represented by your credit report — rather than just your FICO score.
Even if your score is on the lower end, a “respectable” credit history can get you approved.
Buying a house with no credit
If your credit score is low because you haven’t borrowed much in the past, you have a “thin credit file.”
Some people buy everything with cash instead of using credit cards, which is a sign of fiscal responsibility that’s not reflected in a credit score. In this case, your lower credit score doesn’t reflect your willingness and ability to repay a loan.
As a result, many lenders will look at alternative records not included in your credit report, like rent and utility payments. This can help first-time home buyers get approved even without an extensive credit history.
Similarly, if you’ve had credit issues in the past — like bankruptcy or short sale — it’s still possible to buy a house.
A bankruptcy can stay on your credit report for 7 to 10 years. But if you keep your finances in order and make on-time payments following a bankruptcy, you could potentially qualify for a mortgage in as little as two years.
Buying a house with bad credit
Having bad credit is different than having no credit.
If your low credit score comes from collections, write-offs, and late and missed payments, “bad credit” will get your loan denied.
If your credit score is low because you’ve failed to make loan payments on time, or you keep all your credit card balances maxed out, a lender isn’t likely to overlook these issues.
You’ll probably need to take a year or so and work on improving your credit score before you can get serious about buying a house.
What makes up your credit score?
The FICO credit scoring model interprets the information found in your credit report. Some parts of your credit history are more important than others and will carry more weight on your overall score.
Your FICO score is made up of the following:
- Payment history: 35% of your total score
- Total amounts owed: 30% of your total score
- Length of credit history: 15% of your total score
- New credit: 10% of your total score
- Type of credit in use: 10% of your total score
Based on this formula, the largest part of your credit score is derived from your payment history and the amount of debt you carry versus the amount of credit available to you. These two elements account for 65% of your FICO score.
To put yourself in the best position to qualify for a mortgage, focus on these areas first. Pay your bills on time whenever possible, and try to reduce your ‘credit utilization ratio.’
Your credit utilization ratio compares the total amount of credit available to you against your current balances; try to keep it under 30%.
This will improve your FICO scores and mortgage loan terms measurably.
How to solve common credit issues when buying a house
If your credit score or credit history is standing in the way of your home buying plans, you’ll need to take steps to improve them.
Some issues — like errors on your credit report — can be a relatively quick fix and have an immediate impact on your score. Other issues can take much longer to resolve.
You should start checking your credit early on, ideally six to 12 months before you want to buy a house. This will give you time to identify issues with your score or report and work on solving them before you apply for mortgage pre-approval.
Correcting credit report errors
You can, and should, check your credit report before buying a house. Normally, consumers can get one free credit report from each of the major credit bureaus each year at annualcreditreport.com.
If you find errors on your credit report, take steps to correct them as quickly as possible. You can dispute errors online, and federal law requires the bureaus to investigate possible errors.
After you get the results of the investigation, check the credit report again to make sure the errors have been removed.
Buying a house with a credit-challenged partner
The upside to buying a house with your spouse or partner is that you’re likely combining two incomes, which can help you qualify for a larger mortgage payment and a more expensive home.
The downside is that one co-borrower’s low credit score can tank the application for both borrowers. That’s because mortgage lenders use the lower credit score between the two applicants.
Before adding a co-borrower who has bad credit, use a mortgage calculator to see if you can qualify for the loan on your own. If your income is sufficient, you can leave your partner off the mortgage altogether.
You can always add your partner to the property title once the mortgage closes. However, doing this gives your partner some ownership interest in the property, while you would be the only one obligated to pay the mortgage.
Note that if you have joint bank and investment accounts, you can use this money for your down payment and count it as an asset on your mortgage application. Your partner will have to write a letter stating that you have access to 100 percent of the jointly held funds.
Money in accounts that are solely in your partner’s name won’t be considered your assets under most program guidelines.
Getting mortgage-approved while in credit counseling
Credit counseling services often put their clients into debt management plans or “DMPs.” With a DMP, you make a single monthly payment to your counseling agency, which then distributes monthly amounts to your creditors.
Often, the agency gets the creditor to reduce your interest rate and payment while also closing the account. This process reduces your debt, but it can also lower your credit score along the way.
Before you commit to a DMP, ask your creditors how the account will be reported to credit bureaus so you can make an informed decision.
Do mortgage lenders care about debt management plans?
If your credit score and payment history are in their wheelhouse, and your debt-to-income ratio is acceptable, most mortgage lenders don’t care if you’re in a debt management plan.
Neither Fannie Mae nor Freddie Mac’s underwriting guidelines specifically mention credit counseling or DMPs for conforming loans that are processed through their automated underwriting systems.
But if a human manually underwrites your loan, the decision may be different. Underwriters use their best judgment, and opinions vary. In addition, mortgage lenders can “overlay” stricter requirements than program minimums.
FHA home loans and DMPs
FHA mortgage guidelines do mention consumer credit counseling payment plans, and it’s OK to be in one and get a home loan if:
- You are at least 12 months into the plan
- You’ve made all required payments in full and on time
- You have written permission from the counseling agency
This is nearly identical to the FHA’s stance on Chapter 13 bankruptcies, which are actually court-ordered debt management plans.
Is your credit score high enough to buy a house?
If your credit score is above 580, you’re in the realm of mortgage eligibility and homeownership. With a score above 620, you should have no problem getting credit-approved to buy a house.
But remember: Credit is only one piece of the puzzle. A lender also needs to approve your income, employment, savings, and debts, as well as the location and price of the home you plan to buy.
To find out whether you can buy a house — and how much you’re approved to borrow — get pre-approved by a mortgage lender. This can typically be done online for free, and it will give you a verified answer about your home buying prospects.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.