Key takeaways
- One of the key elements lenders consider when you apply for a mortgage loan is your credit score.
- Various loan categories come with distinct minimum credit score criteria.
- Generally, the better your credit score, the lower interest rate you will be eligible for.
Technically, you do not require a credit score to purchase a home. For instance, if you're using cash, nobody really checks your credit rating. Nonetheless, should you—like many prospective U.S. homeowners—need a mortgage, your credit score becomes essential.
Your credit score is one of the most important factors lenders consider when you apply for a mortgage . Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.
Therefore, what constitutes a good score if your aim is to buy a house It varies based on the kind of mortgage you're looking for: Different loans have varying requirements regarding credit scores. Typically, you would probably need a minimum score of around 620—a "fair" rating—to meet most lenders' criteria. However, for an FHA loan, approval may be possible even with a lower score down to about 500.
Why does your credit score hold importance for creditors?
Your credit score assists lenders in assessing your capability to pay back the mortgage—and consequently, their level of risk in providing you with the loan. A higher score indicates lower risk for them.
When considering the best credit score required for purchasing a home Many creditors utilize the FICO scoring system. This system evaluates borrowers within a scale of 300 to 850 points, where a higher number signifies lower risk for the creditor. The breakdown of FICO scores is as follows:
- 800 or higher: Exceptional
- 740-799: Very good
- 670-739: Good
- 580-669: Fair
- 579 or lower: Poor
Another figure that mortgage lenders scrutinize closely is your debt. debt-to-income ratio (DTI) Or consider the proportion of your monthly debt commitments compared to your total earnings. For instance, if you receive an income of $4,000 each month and owe $1,250 toward credit cards, loans, mortgage, and additional liabilities, then your Debt-to-Income (DTI) ratio stands at 31%. Generally, a desirable DTI ratio should not exceed 36%, although certain creditors might approve applications with slightly elevated ratios provided they come with larger upfront installments.
Credit Score Required for Home Purchase Based on Mortgage Type
There isn’t one definitive credit score that guarantees approval for a mortgage (although achieving the highest possible score of 850 can always be advantageous). Nonetheless, even though lenders may not establish exact threshold scores, they typically define minimum credit score criteria—essentially, the lowest acceptable credit score needed to purchase a home using a certain type of loan.
The lowest credit score required for obtaining a mortgage varies depending on the lender and the specific loan type.
| Loan Type | Minimum Credit Score |
|---|---|
| Conventional loans | 620 |
| FHA loans | 500 (including a 10% initial installment); 580 (including a 3.5% initial installment) |
| USDA loans | The USDA does not have a mandatory minimum score, however, lenders typically prefer to see scores of at least 640. |
| VA loans | The VA doesn’t have a required minimum score, however, lenders typically prefer borrowers with scores of at least 620. |
| Jumbo loans | Varies by lender |
- Conventional loans Conventional loans refer to mortgages not provided or supported by a U.S. government agency; instead, they come from commercial banks and thrift institutions like savings-and-loan associations. Typically, the better your credit score, the greater your chances of qualifying for this type of mortgage loan from these lenders. While many might approve applicants with a minimum credit score of 620, borrowers meeting this criterion could face additional conditions, including needing a higher income or making a bigger down payment.
- FHA loans The Federal Housing Administration backs loans designed for applicants who have lower credit scores and smaller down payments, particularly those buying their first homes. You could be eligible for an FHA loan with a credit score ranging from 500 to 579 if you make a 10 percent down payment. Alternatively, if your credit score is 580 or above, you may qualify with just a 3.5 percent down payment.
- USDA loans The U.S. Department of Agriculture backs this loan initiative aimed at assisting low- to moderate-income individuals who wish to buy a house in an eligible rural region. Typically, applicants must have a minimum credit score of 640 to be considered for a USDA loan. However, certain USDA-approved lenders might evaluate candidates with scores below this threshold after conducting a thorough examination of their financial history.
- VA loans VA loans, guaranteed by the U.S. Department of Veterans Affairs, are available to active duty and veteran service members along with their families. While the government does not set a specific minimum credit score for these loans, most lenders providing the actual funding typically demand a minimum score of around 620.
- Jumbo loans Jumbo loans refer to mortgage amounts that surpass the standard loan limits set by Freddie Mac and Fannie Mae, which stand at $806,500 for most areas as of 2025. Due to the heightened risk associated with lending these substantial sums, many jumbo lenders necessitate a minimum credit score of 700 for approval.
How your credit score influences your mortgage interest rate
Even though individual lenders decide what credit scores borrowers require to get the best rates. mortgage interest rates A slight variation of merely a few points in your credit score can occasionally have a significant impact on your monthly payments. To illustrate, for a $300,000 mortgage, the disparity in principal and interest payments between a 7% interest rate and a 6.5% rate amounts to $99 each month. Over the span of a 30-year mortgage term, this adds up to more than $35,000.
“Having a poor credit score decreases the likelihood of qualifying for favorable interest rates and might result in the denial of your mortgage application,” explains Bruce McClary, who serves as the senior vice president of communications at the National Foundation for Credit Counseling. “While approval is still achievable with a lower credit score, you may need to include a cosigner or decrease the total loan amount.” the sum you intend to borrow .”
A co-signer would bear responsibility for the debt, making it challenging to find someone willing to agree. Additionally, failing to make payments can harm both your co-signer’s credit score and your personal relationship with them.
Below are the amounts you would pay with today's interest rates for different credit score ranges. The figures shown use nationwide average data for a 30-year fixed-rate mortgage of $300,000.
| FICO Score | APR* | Monthly Payment | Total Interest Paid | Price Changes |
|---|---|---|---|---|
| 760-850 | 7.208% | $2,038 | $433,676 | If your score drops to between 700 and 759, you might have to pay an additional $16,084. |
| 700-759 | 7.427% | $2,083 | $449,760 | If your score goes up to 760-850, you might save an additional $16,084. |
| 680-699 | 7.533% | $2,104 | $457,594 | If your score increases to between 700 and 759, you might save an additional $7,833. |
| 660-679 | 7.593% | $2,117 | $462,041 | If your score increases to between 699 and 680, you might save an additional $4,448. |
| 640-659 | 7.685% | $2,136 | $468,880 | Should your score increase to the range of 660-679, you might save an additional $6,839. |
| 620-639 | 7.809% | $2,161 | $478,133 | Should your score increase to the range of 640-659, you might save an additional $9,253. |
| *Source: myFICO . |
’s loan comparison calculator It’s a useful resource to view interest rates based on credit scores. Additionally, you can utilize ‘’. mortgage APR calculator To calculate the figures and observe how your potential monthly mortgage payments could vary with differing interest rates.
Ways to enhance your credit score
Before viewing homes, it’s wise to check your credit score And obtain your credit reports from the primary credit bureaus. Tackling credit problems promptly can assist you in improving your score prior to applying for a mortgage.
If your credit score isn't impressive, there are still alternatives. Rather than accepting the mortgage rates you presently qualify for, consider postponing homeownership And striving to enhance your credit score and expand your choices. Below are some rapid suggestions to assist you:
1. Review your credit report and fix any inaccuracies
Prior to submitting an application for a mortgage, obtain copies of your credit reports from the big three credit bureaus—Experian, Equifax, and TransUnion. Each organization allows you to view your report at no cost once annually. Should inaccuracies or omissions appear, lodge a formal challenge with both the relevant credit-reporting agency and the lender involved. Make certain to specify every disputed entry clearly and attach any pertinent documentation as evidence.
2. Reduce credit card debts
Your credit utilization ratio represents the proportion of debt you carry relative to your accessible credit limit. You can determine this figure by dividing your total debt by your available credit. For example, if you owe $10,000 and have an available credit line of $20,000, then your credit utilization ratio would be 50%. Financial institutions typically prefer borrowers who maintain a credit utilization rate at or below 30%.
3. Ensure all invoices are paid punctually
Thirty-five percent of your credit score comes from your payment history. Even though late payments remain on your credit report for seven years, they gradually lose influence on your score as time passes.
4. Avoid closing old credit accounts once you've paid them off.
Shutting down inactive accounts could seem beneficial, yet it might increase your credit utilization ratio and lead to a decline in your credit score.
5. Avoid opening additional accounts or taking out big loans.
Typically, having less debt makes you more favorable when applying for a mortgage. The FICO advises against opening additional lines of credit as this could raise your credit utilization ratio; every new application might marginally decrease your score. After improving your credit, feel free to shop around for rates, just ensure all inquiries occur within thirty days—dispersing these requests may negatively impact your score. Additionally, utilizing 's mortgage calculator To calculate your estimated monthly mortgage payments.
FAQs
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Is it possible to secure a mortgage when you have a poor credit score?
Perhaps. It is definitely feasible. obtain a home loan despite having a poor credit score However, it can be more difficult. For instance, FHA loans could permit a minimum score as low as 500; nonetheless, they would necessitate a substantially larger down payment instead. If you're looking for a mortgage with a poor credit score, expect to face higher interest rates and increased monthly payments. Additionally, lenders might impose stricter criteria regarding various elements of your financial situation, including your debt-to-income ratio.
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Will my mortgage offer improve with a stronger credit score?
It's likely so. While credit scores aren't the sole element considered in mortgage approvals, they do typically influence the interest rates offered; usually, a better score gets you a reduced mortgage rate. Often, mainstream lenders aim for a minimum credit score of around 620.
