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What Credit Score Do You Need To Buy A House?

December 27, 2023 8-minute read

Author: Victoria Araj

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Your credit score is an important consideration when buying a house because it shows your lender how you manage debt. The credit score you’ll need to buy a house depends on the type of mortgage you’re applying for. However, the general rule of thumb is the higher your credit score, the lower the mortgage rate you’ll qualify for.

Let’s take a look at the credit score you’ll need to buy a house, which loan types are best for certain credit ranges and ways to improve your credit score.

How Do Lenders Determine Your Credit Score?

Before we get into the credit score you’ll need to qualify for a mortgage, you might be wondering how lenders determine your credit score. After all, your FICO® Score is reported by three different credit bureaus.

If you're applying for a loan on your own, lenders get your credit score from each of the three major credit rating agencies and use the middle or median score to qualify you for a home loan.

If there are two or more borrowers on a mortgage loan, the lowest median score among all clients on the mortgage is generally considered the qualifying credit score. The exception to this rule is for a conventional mortgage where multiple clients are backed by Fannie Mae. In that case, the lenders average the median scores of the borrowers on the loan.

Credit Score Evaluation Example

Let’s consider an example using a lender that allows averages. If you have a median score of 580 and your co-borrower on the loan has a 720 credit score, the average credit score would be 650. Because the minimum qualifying score for conventional loans is 620, this can mean the difference between qualifying for a mortgage and not.

Keep in mind that for the purposes of your interest rate and mortgage insurance, the lowest median score is the one that gets reported, which could raise your rate slightly. There are also certain situations in which Fannie Mae would still use the lowest middle score for qualification. Speak with a Home Loan Expert if you have questions about the credit score you’ll need to qualify for a mortgage.

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What Is A Good Credit Score To Buy A House?

A good credit score to buy a house is one that helps you secure the best mortgage rate and loan terms for the mortgage you’re applying for. You’ll typically need a credit score of 620 to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with scores as low as 500.

Whether you qualify for a specific loan type also depends on personal factors like your debt-to-income ratio (DTI), loan-to-value ratio (LTV) and income. We’ll discuss these qualifying factors later on.

Credit Score Needed To Buy A House By Loan Type

Your credit score is a number that’s used to indicate your creditworthiness. The higher your score, the more responsible of a borrower you’ll appear to mortgage lenders.

Though higher credit scores are considered more favorable for lenders, it’s still possible to get a mortgage with a lower credit score. It all depends on the type of loan you’re applying for. Let’s go over the specific credit score requirements for conventional and government-backed loans.

Mortgage Type

Minimum Credit Score

Conventional loan

620

FHA loan (3.5% down payment)

580

FHA loan (10% down payment)

500 – 579

VA loan

No industry-standard credit score requirement (Rocket Mortgage® requires a 580 score)

USDA loan

No industry-standard credit score requirement (most lenders require a 640 score)

How To Increase Your Credit Score Before Buying A House

Conventional Loan Credit Requirements

Conventional loans aren’t guaranteed or backed by a government agency. These loans are best suited to borrowers who have higher credit scores and money saved up for a down payment. It’s recommended you have a credit score of 620 or higher when you apply for a conventional loan.

If your score is below 620, lenders either won’t be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly mortgage payments. If you have bad credit, you may want to work on improving your score before applying for a conventional mortgage loan.

FHA Loan Credit Requirements

If you have a lower credit score or don’t have enough cash saved for a down payment, you might consider an FHA loan. FHA loans are insured by the Federal Housing Administration (FHA). The minimum credit score for an FHA loan is 580 if you make a 3.5% down payment. If you have a credit score between 500 and 579, you’ll be required to make a down payment that’s 10% of the home’s purchase price.

VA Loan Credit Requirements

VA loans are insured by the U.S. Department of Veterans Affairs (VA) and backed by the federal government. You may be eligible for a VA loan if you’re a qualified veteran, active-duty service member or surviving spouse. There’s no industry-set minimum credit score requirement to buy a house with a VA loan, but Rocket Mortgage requires a credit score of at least 580 to qualify.

USDA Loan Credit Requirements

You could also consider a USDA loan if you plan to live in a qualified suburban or rural area and have an income that falls below 115% of the area’s median income. USDA loans are backed by the U.S. Department of Agriculture (USDA) and don’t have an industry-standard credit score requirement. However, most lenders require a minimum credit score of 640 for USDA loans.

Rocket Mortgage does not offer USDA loans at this time.

Understanding Your Credit Score

Once you have a basic understanding of what credit score is needed for each type of loan, it’s time to take your own score into consideration. That means looking at your credit report.

Your credit report is an essential part of understanding your credit score because it details your credit history. Any mistake on your credit report could lower your score, so it’s important to check your credit report every once in a while, and report any errors to one of the credit reporting agencies. You’re entitled to a free credit report from all three major credit bureaus once a year.

Once you know your score, you can assess your options for a conventional or government-backed loan. When you’re ready, you can take the steps to apply for a mortgage.

FICO® Score Vs. Credit Score

The three national credit reporting agencies – Equifax®, Experian™ and TransUnion® – collect information from lenders, banks and other companies and compile that information to formulate your credit score.

There are many ways to calculate a credit score, but the most sophisticated, well-known scoring models are the FICO®Score and VantageScore® models.

The following factors are taken into consideration when building your credit score:

  • Payment history: Lenders want to know whether you make credit card payments on time.
  • Amounts owed: Lenders consider how you use your available credit.
  • Length of credit history: Mortgage lenders look at how long your credit accounts have been open.
  • New credit: Lenders consider any new credit accounts when evaluating your score.
  • Credit mix: Lenders look at all of the different types of credit you use.

How To Increase Your Credit Score Before Buying A House

If you want to qualify for a loan and your credit score isn’t up to par, you can take actionable steps to improve your credit score. Let’s walk through some of the ways to increase your score before buying a house.

Tip #1: Pay Off Outstanding Debt

One of the best ways to increase your credit score is to identify any outstanding debt you owe and make payments on that debt until it’s paid in full. This is helpful for a couple of reasons. First, if your overall debt responsibilities go down, then you have room to take on more, which means you’re less of a risk to your mortgage lender.

Paying down your credit card balances also improves your credit utilization ratio, or the amount of money you spend compared to your total credit limit. Lenders look at this ratio to determine how you manage your existing debts. The lower your credit utilization ratio is, the more reliable you appear as a borrower.

To calculate your credit utilization ratio, simply divide how much you owe on your card by how much spending power you have. For example, if you typically charge $2,000 per month on your credit card, divide $2,000 by your total credit limit of $10,000. Your credit utilization ratio is 20%.

Tip #2: Pay Your Bills On Time

A large part of what a lender wants to see when they evaluate your credit is how reliably you can pay your bills. This includes all monthly payments, not just auto loans or mortgages – utility bills and cell phone bills matter, too.

Tip #3: Don’t Apply For Too Much Credit

You should resist the urge to apply for more credit cards as you try to build your credit score. New credit applications put hard inquiries on your credit report. Too many hard inquiries can negatively affect your credit score.

Other Considerations When Buying A House

Your credit score is just one element that goes into a lender’s approval of your mortgage. Here are some other personal factors that lenders consider when qualifying you for a mortgage.

1. Debt-To-Income Ratio (DTI)

Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying off debt. Having less debt in relation to your income makes you less risky to lenders, which means you’re able to safely borrow more on your mortgage.

To find your DTI, divide the amount of recurring debt (including credit cards, student loans and car payments) you have by your monthly income. Here’s an example:

If your debt is $1,000 per month and your monthly income is $3,000, your DTI is $1,000 / $3,000 = 0.33, or 33%.

It’s advantageous to have a DTI of 50% or lower. The lower your DTI, the better chance you have at being offered a lower interest rate.

2. Loan-To-Value Ratio (LTV)

The loan-to-value ratio (LTV) is another factor used to determine how you qualify for a home loan. Your LTV is the loan amount divided by the home’s purchase price.

Here’s an example. Let’s say you buy a home for $150,000, put $30,000 down and take out a mortgage loan for $120,000. Your LTV would be 80%. As you pay off more of your loan, your LTV decreases. A higher LTV is riskier for your lender because it means your loan covers a majority of the home’s cost.

LTV decreases when your down payment increases. Considering the example above, if you take out a $110,000 loan and put $40,000 down ($10,000 more than before), your LTV is now 0.73, or 73%.

Different lenders accept different LTV ranges, but it’s best if your ratio is 80% or lower. If your LTV is greater than 80%, you may be required to pay a form of mortgage insurance. Keep in mind that this varies by loan type. Some loans, like VA loans, may allow you to finance the full purchase price of the house without having to pay mortgage insurance.

3. Income And Assets

Your lender wants to be sure that you maintain a steady income and consistent employment. Lenders often ask borrowers for documents that validate their income, assets and work history. These documents may include recent bank statements, pay stubs and W-2s. The steadiness of your income could affect the interest rate you’re offered.

The Bottom Line

The credit score required to buy a home varies based on the type of loan you’re applying for. The higher your score is, the easier it can be to qualify for a mortgage loan. If you’re starting the home buying process, remember to stay on top of your score and check your credit report regularly.

Are you ready to take the next step toward homeownership? Start your mortgage application to see what loan program you qualify for today.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.