What Credit Scores Should You Have For Buying a House?

Real Estate Agent with RE/MAX Executive Realty 91362

If you have a good credit score, it will be easier to qualify for a mortgage. Though the minimum credit score required depends on the lender and the type of home loan.

If you have a lower credit score, lenders will consider you a bigger risk, and the mortgage will cost you more in interest and fees. With a lower credit score, you can still buy a home though there will be fewer options when choosing a lender.

But what do lenders consider an acceptable score to approve a mortgage, and do you have a good credit score to buy a house? We will examine what you need to know about credit scores for home purchases, including the minimum score and what is considered good.

What is a Good Credit Score to Buy a House?

Usually, a lender will need a credit score of 620 or more to approve your home loan. This is the minimum with conventional loans, though it can be approved for government-backed loans with a credit score under 600.

The minimum credit score requirement depends on the mortgage type and the lender’s requirements. Let’s look at the main mortgage types:

Conventional Home Loans

No government agency backs conventional loans following Fannie Mae and Freddie Mac standards. If you have great credit, a conventional loan will normally be best, with better interest rates and flexibility.

You must have a credit score of at least 620 to qualify for a conventional loan. One of the downsides of a conventional loan is you will pay private mortgage insurance with less than a 20 percent down payment.

There are ways you can avoid PMI when getting a mortgage. Read up to find out how.

FHA loans

FHA loans are a popular mortgage product for first-time home buyers due to their relaxed credit score requirements.

The Federal Housing Administration insures FHA loans. This allows lenders to offer loans to borrowers that might not qualify for conventional mortgages.

Borrowers can benefit from a down payment requirement of just 3.5% with a credit score of at least 580. They also offer low equity refinances that could allow refinancing of 97.75% of the home’s value.

While the FHA doesn’t require a minimum credit score, lenders set their minimums. If your score is under 580, you will need a down payment of 10%.

Your credit score could vary between the main three credit bureaus, and your lender may use the middle of the three scores. When applying with a partner, the lower of the two middle scores will be used in your application.

USDA loans

USDA loans are popular for those who are buying in less populated areas.

The U.S. Department of Agriculture also operates a home loan program to increase rural development. To qualify for this type of loan, the home has to be in an eligible area, be a single-family home, and your income cannot be higher than 115% of the median household income for that area.

Borrowers don’t need a down payment, and interest rates are competitive. Closing costs can be financed as part of the loan, and there aren’t repayment penalties if you pay off your mortgage early.

There isn’t a minimum credit score requirement from the USDA. Lenders often require scores of 640, though lower credit scores can also be approved in some situations.

VA loans

You could benefit from a VA loan if you are an eligible member of the U.S. military, the National Guard, the Reserves, or a veteran. Spouses of military personnel who died on active duty or because of a disability-related to their service could also qualify.

VA loans are available to borrowers with lower credit and offer 0% down payments. There isn’t a requirement to pay private mortgage insurance, though a funding fee could be as much as 2.15% of the purchase price.

If you have a 10% down payment, this will be reduced to 1.25%, and disabled veterans don’t have to pay.

There isn’t a minimum credit score, though lenders will set their own minimums. VA loans have property condition requirements that must be met. Knowing the property condition requirements become essential. if you are buying a home in as-is condition.

Jumbo Loans

A jumbo loan is an option if you want to buy a home requiring a loan higher than conforming to loan limits. The limit varies depending on location, with higher conforming loan limits in high-cost areas.

You will need a low debt-to-income ratio if you need a jumbo loan. You will also need good credit when applying for this type of mortgage. A score of at least 740 is needed for a 15-year jumbo loan and 680 for a 30-year fixed rate.

The Bottom Line

Understanding how to get a good credit score is essential when buying a house.

If your credit score is higher, you have more options when applying for a mortgage. Better credit will also reduce the cost of your mortgage with lower interest paid.

There are things you can do to improve your credit score before applying for a mortgage. Check your credit reports from the three main bureaus and correct any errors. A history of paying your bills on time and reducing your debt are steps to improve your credit score gradually.

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comments (2)

MadisonMortgageGuys .com
MadisonMortgageGuys - Oconomowoc, WI
Your local mortgage company serving 47 states!

Great information for home buyers Bill Gassett 

Apr 13, 2023 09:56 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Apr 16, 2023 02:54 AM