Credit Score Needed to Buy a House

Austin KilhamUpdated July 13, 2022

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Buying a house is one of the biggest financial decisions you’ll ever make. And if you’re like many Americans, you’ll need to take out a mortgage to help you finance your purchase. Whether or not a lender will give you a mortgage, and what terms and interest rate it will offer you, is inextricably tied to your credit score. In some cases, you may be able to secure a loan with a credit score as low as in the 500s range. But the higher your score, the more likely you are to get a loan with favorable terms and the cheaper the interest rate is likely to be.

What Exactly Is a Credit Score?

When you apply for any loan—whether it’s a mortgage, a start-up loan, or a business line of credit—one of the first and most important factors that lenders will consider is your credit score. Whenever you apply for credit, potential lenders want to know how big a risk they’d be taking if they were to offer you a loan. Your credit score tells them about your creditworthiness—how likely you are to pay back your loans on time. The score will then have an influence on the type of credit or loan available to you, as well as the terms and interest rates. Credit scores are typically represented by a three-digit number between 300 and 850. Higher scores represent lower risk to lenders. A good credit score is usually considered to be one from 670 to 739 (higher than that are the very good and exceptional ranges).A number of factors affect your credit score, including your credit history, how much debt you currently carry, and your track record for making payments on time. The three major credit reporting bureaus—TransUnion, Equifax, and Experian—keep track of this data. Each one may have a slightly different scoring model, so credit scores may vary from bureau to bureau. You may also have heard of FICO® scores, created by the Fair Isaac Corporation, which are calculated based on the information provided by the three reporting bureaus. They are perhaps the most widely used scores among lenders to make decisions about potential borrowers. Generally speaking, credit scores may be evaluated as follows:

300–579: Poor
580–669: Fair
670–739: Good
740–799: Very Good
800–850: Exceptional

As of 2020, the average credit score in the U.S. was good, clocking in at 711. A good (or better) score is taken by creditors to mean that you’re responsible with your money and likely to pay loans back on time, and it may make them more confident when lending you money.

Why Is a Credit Score Important When You’re Buying a House?

There are a number of reasons why a good credit score is critical when you’re buying a house. First, it will help determine what kind of loan you can secure, such as a conventional, FHA, or jumbo loan. The type of loan you secure will help determine how much money you need to put down. Also, if your lender requires you to buy private mortgage insurance, your credit score has an impact on the size of your premium. Additionally, your credit score has a huge impact on the interest rate the lender will charge you. Home loans are large, so even small increases in interest rates can translate into big costs over the life of the loan. If you have poor credit, you could potentially spend tens of thousands of dollars more over the life of a loan than someone with good credit.

What Credit Score Do You Need to Buy a House?

The credit score you’ll need to buy a home will vary, depending on what type of loans you’re looking at. Here’s a breakdown:

Conventional Loans

Conventional loans are mortgages that follow standards set by Fannie Mae and Freddie Mac. However they aren’t insured by a government agency. At minimum borrowers typically need a score of 620 or higher to qualify for a conventional loan. However, most conventional loan borrowers have a score in the 750 to 799 range, according to data from Ellie Mae, a software company that processes mortgage applications. Private mortgage insurance is required with conventional loans with a down payment of less than 20%. Borrowers with higher credit scores may get a break on these premiums.

FHA Loans

The Federal Housing Administration insures FHA loans, which makes them less risky for lenders. As a result people with lower credit scores may find it easier to get an FHA loan than a conventional loan. In fact, you may be able to have a credit score in the 500s and still secure an FHA loan, though lenders may likely impose their own minimums. According to Ellie Mae, most FHA borrowers have a FICO® score in the 650 to 699 range.

VA Loans

The Department of Veterans Affairs guarantees VA loans. To qualify for a VA loan you must be a veteran, an active member of the military, or an eligible spouse. There is no minimum credit score set by the government to qualify for these loans. Instead, VA lenders choose their own minimums, which are typically in the low to mid 600s.

Jumbo Loans

When a property is too expensive for a conventional conforming loan—more than $548,250 in most parts of the country—borrowers must turn to jumbo loans. Jumbo loans aren’t backed by any government agency. Thus they are riskier for lenders, because they aren’t protected should the borrower default on the loan. As a result, jumbo loans typically require a high credit score of at least 700.

Can You Get a Home Loan with Bad Credit?

If you have a bad credit score, it’s still possible, in some cases, to qualify for a mortgage. Just be aware that lenders will see you as a risk and, to offset that risk, they’ll likely charge you a much higher interest rate. They may also require that you put down a larger down payment to increase the equity you have in the home. It’s also possible that you won’t qualify for a mortgage. If this is the case, you still have a few options. You could have a friend or family member with better credit co-sign on the mortgage, which might help you secure the loan. That said, your co-signer is on the hook for the loan if you default and must understand that. You could also work to improve your credit score and then try again for the loan.

How Can I Improve My Credit Score?

If your credit score drops or you have a low score and want to improve it, you can start by regularly monitoring your credit report. You can request a free credit report from each of the three credit reporting bureaus once a year. You could even rotate your requests so that you make one every four months and thus have free insight into your credit report three times per year. Your credit score is a distillation of your report, and frequent monitoring can help ensure that everything on the report is correct. If you spot anything amiss, be sure to alert the credit reporting bureaus immediately to have your report corrected. You may also choose to engage a credit monitoring service that can keep you updated on your credit report. Costs for monitoring services vary, along with the specific services offered. You can also take steps to improve your credit by paying your bills on time and in full. You might consider setting up automatic bill payment to ensure that a payment never slips your mind. How much debt you currently carry versus how much credit is available to you—a ratio known as your credit utilization ratio—plays a big role in your credit score calculations, too. Paying off credit cards can improve your ratio and your score.

The Takeaway

The credit score you need to buy a house will largely depend on on the type of loan you’re trying to secure, how much money you can put down, and how high an interest rate you can afford. In general, the higher the credit score you can achieve, the more options you’ll have and the cheaper your loan will be. If you’re ready to start shopping for a home loan, visit Lantern Credit by SoFi. You’ll be able to check out a range of financial products by filling out just one simple form. Having all your choices to compare in one place can help you choose the best fit for you.

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About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

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