William LipovskyShort Answer
To buy a house with a conventional mortgage, USDA loan, or VA loan, you will typically need a credit score of at least 620 to 640. Those with lower scores may be eligible for FHA loans, which have minimum scores of 500 or 580, depending on the down payment amount. For more information on what credit score you need to buy a house, see below.
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What Credit Score Do You Need to Buy a House?
The minimum credit score needed to buy a home varies depending on the type of loan. In general, you must have a credit score of at least:
- Conventional mortgage: 620
- Federal Housing Administration (FHA) loan: 500 or 580, depending on your down payment amount
- U.S. Department of Agriculture (USDA) loan: No nationwide minimum; usually 640
- U.S. Department of Veterans Affairs (VA) loan: No nationwide minimum; usually 620
Because FHA loans are government-insured, they are typically easier to get than conventional mortgages. They are designed for first-time home buyers and those with lower credit scores, low down payment savings, and moderate income.
Down payments for FHA loans start at 3.5%, while conventional loans typically require down payments between 5% and 20%. (USDA and VA loans do not require down payments, but have additional eligibility requirements.)
If an FHA lender approves you with a credit score between 500 and 579, it will usually require an increased down payment of 10%. However, only select FHA lenders offer this; we contacted several FHA lenders, including Quicken Loans, and found that most require a minimum score of 580.
The Ideal Credit Score to Buy a House
To qualify for the best interest rates, you should have a credit score of 740 or above. All but one of the lenders we contacted said 740; the other said 760. Keep in mind that because a score of 740 or above is generally considered “Excellent,” an 850 credit score (the best a person can get) will likely get you the same interest rate as someone with a 740.
To determine if you have the ideal credit score for buying a home, make sure the average of your three scores is at least 740. You can use online tools like Credit Karma or CreditWise to monitor your score yourself; if it remains above 740 between all three of the major bureaus (Equifax, Experian, and TransUnion) for a few months, you should qualify for a low interest rate.
If you don’t have an excellent credit score, you may be able to get your interest rate decreased in other ways, such as by offering a larger down payment.
How Lenders Decide Your Score
There are several different credit scores your lender will likely use to assign you an interest rate. Most lenders check FICO scores from the three major credit bureaus (Equifax, Experian, and TransUnion), which provide three different score versions:
- Equifax Beacon 5.0
- Experian/Fair Isaac Risk Model v2
- TransUnion FICO Risk Score 04
If all three scores are different, the lender will use the middle score rather than the highest or lowest score. If two of the scores are the same, the lender will use that score, regardless of whether the two repeated scores are higher or lower than the third score.
Other Mortgage Approval Factors
Lenders will determine your eligibility for a mortgage based on the following criteria:
- Credit score
- Credit history/profile
- Debt-to-income ratio
- Down payment
- Employment history
- Income
- Savings
Note that VA and USDA loans have additional requirements; VA loans are for members or veterans of the military, and USDA loans require that the home is located in an eligible rural area.
Because lenders consider all of these factors, a low credit score won’t necessarily disqualify you for a loan, particularly if you choose a lender that practices manual underwriting. However, if approved, lower credit scores will receive higher interest rates, meaning the total cost of your home by the time you pay the mortgage off will be higher.
In Summary
The minimum credit score for a conventional loan is 620, while FHA lenders will approve applicants with lower scores of 500 or 580 and up. Military members and veterans with scores of 620 or higher typically qualify for VA loans. USDA loans for rural property usually require a score of at least 640. For the best interest rate on your mortgage, you will need a credit score of 740 or higher.
Want to avoid a mortgage altogether? See the pros and cons of buying a home with cash.
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Kait Scirri
I agree with your explanation about interest rates. We must have the minimum credit score to get considered for the loan and with the higher credit score the chances gets increased. Thanks for sharing this interesting topic with us.
Very interesting indeed, Will.
I have had a credit card for years now (since my late teens) though I have always paid back in full every month. Recently I got another credit card which offers cashback but has a higher interest rate and credit limit. As before, I always pay back in full. Chiefly this was to get something back from my spending but also to bolster my credit rating.
It would be interesting to know whether the magic 740 credit score is similar here in the UK. It seems a logical figure: strong but not perfect! If anyone knows about the UK context it would be very interesting to hear.
I have not looked at my credit rating yet as it has little relevance to me currently. I will start to be a bit more aware, however, soon.
I need a 625+ credit score before I would even rent you my apartment. A credit score of 740 is needed for investment properties if you are getting a mortgage. Along with a sizable down stroke and solid bank balance.
Ooooh, good news. My credit score just crossed the 740 threshold last month. Thanks for the tip.
“Plus, with one of these loans you only need a 3.5% downpayment” anyone else find that terrifying?!?!?!??!?!!?
People could get into a lot of trouble with this… However, opportunity cost is something to consider. If you can make better use of your money elsewhere, why do a big down payment? For instance, it’s wiser to do a low DP than to set aside a large DP and have to get a business loan for your startup. A mortgage is usually really cheap money so some people enjoy using it to full advantage.
Congrats on that shiny new credit card! Use it wisely 🙂
It’s surprising how much your score can vary between the different reports. The last time I checked mine, there was a 30 point difference between the three reports.
So far, so good! Although I can see how these things can increase one’s desire to spend. It’s kind of fun counting up the rewards!