What is a good credit score for buying a house?

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What is a good credit score for buying a house?

The average credit score in the United States is around 714, according to Experian. This is well within the range of what mortgage lenders consider ‘good’. In fact, most lenders consider any FICO score above 680 a good credit score for buying a home.

Even if your credit is below 680, you can still buy. It is often possible to get a home loan with credit scores of 580 and above. So if your credit falls under the “good” mark, it’s always worth checking out your home buying options.


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How Mortgage Lenders View Credit Scores

For mortgage lenders, credit scores fall into several categories or “tiers”. These credit levels indicate the level of risk associated with extending credit to homebuyers. Most lenders use the following ranges to categorize credit scores.

FICO Credit Score Levels for Homebuyers:

  • 740 or higher: Excellent
  • 680-739: Awesome
  • 620-679: Good
  • 580-619: Fair
  • Below 580: Bad

As you can see, most mortgage lenders consider any score over 620 to be good credit. But that doesn’t mean that only borrowers with good credit can buy homes. There are mortgage options available for those in “good” and sometimes even “bad” credit brackets. So, having a credit rating that isn’t “good” won’t necessarily prevent you from buying a home.

How a Good Credit Score Affects Buying a Home

The best way for lenders to predict whether you’ll pay off your mortgage on time is to look at how you’ve managed your debts in the past. Good credit scores tell lenders that you have a track record of managing your debts properly. For this reason, the higher your score, the better your chances of qualifying for a mortgage.

Besides having a better chance of qualifying, there are other benefits to having a good credit rating when buying a home. These include:

  • Better interest rates
  • A greater variety of loan programs
  • Lower private mortgage insurance (PMI) rates
  • Reduced overall loan costs

Overall, lenders view borrowers with good credit as lower risk. Banks can offer lower rates and fees to homebuyers with good credit because they are less likely to lose money on the loan.

As a buyer, having good credit could save you thousands of dollars in interest and PMI fees in the long run. So, if your credit is low, it may be worth taking steps to improve your score before applying for a home purchase.

Credit score requirements by loan program

Buyers and homeowners have several mortgage loan programs to choose from. Everyone has their own minimum credit score requirements. In addition, each lender can establish their own credit rating based on their risk tolerance.

While a score of 740 or higher is ideal from your lender’s perspective, you may qualify for a mortgage with a significantly lower credit score.

Classic loan: 620

Conventional loans generally have the best mortgage rates and terms for borrowers with good credit. With a conventional loan, your score has a direct impact on your interest rate and loan fees. So the better your credit, the cheaper your mortgage will be.

Most lenders require a minimum credit score of 620 for a conventional mortgage and a down payment of at least 3%. Some require higher scores. Conventional loans, also known as “conforming loans”, are mortgages that meet Fannie Mae and Freddie Mac guidelines. Conventional loans are the most common type of mortgage loan.

FHA loan: 580

FHA loans were originally designed to help low-to-moderate income mortgage borrowers, allowing for a down payment of just 3.5%, lower credit score requirements, and higher debt-to-income ratios. Technically, the Federal Housing Administration allows credit scores from 500-579 with a 10% drop. However, few lenders start at 500 in practice. Most FHA lenders want to see minimum scores between 580 and 600.

VA loan: 580

Backed by the Department of Veterans Affairs, VA loans are known to have some of the lowest mortgage rates available. In addition to flexible loan terms, VA loans require no down payment. The VA does not have a minimum score requirement. However, most lenders set their own score requirements which typically range from 580 to 600.

USDA loan: 640

US Department of Agriculture loans are for properties located in rural areas. USDA loans offer 100% financing with lower interest rates than conventional loans. Although the USDA does not set minimum credit score requirements, most lenders look for a minimum score of 620 to 640.

Giant Loan: 700

Jumbo loans are mortgages that exceed conforming loan limits – currently $ in most parts of the United States. Some lenders offer jumbo loans to mortgage borrowers with credit scores as low as 680, but most require 700 or more.

Jumbo loans are “non-conforming mortgages”, meaning they do not meet Fannie Mae and Freddie Mac guidelines. So, lenders can set their own jumbo loan requirements, and things like minimum credit score and minimum down payment can vary widely from bank to bank.

Check your eligibility to buy a home

Most people know how important credit scores are when it comes to buying a home. But credit isn’t the only factor lenders consider when approving your home loan. They also take a close look at your debt ratio, employment history, down payment, and any additional savings or investments. If your application looks strong in these other areas, it can help offset a lower (or non-existent) credit score.

Not sure about your qualifications? Check with a lender to find out if your credit score and complete financial situation allows you to buy a home.

The information contained on The Mortgage Reports website is provided for informational purposes only and does not constitute advertising 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 company or affiliates.

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