What Credit Score Do You Need To Buy A House?

How to improve credit score

Eduardo Monroy

January 24, 2023
What Credit Score Do You Need To Buy A House

No matter where on the scale you stand, credit scores are a confusing topic. The concept sounds easy enough to understand: a good credit score boosts your chances of qualifying for various loans. A high credit score tells a lender that you have a good history of repaying your loans on time. 

When purchasing a home, you’ll need a good credit score to qualify for a mortgage. But is there a minimum credit score you need to be eligible for a mortgage? The short answer is yes, but this number may vary depending on what type of mortgage you may be seeking. But before we get into what credit scores you’ll need to purchase a home, let’s discuss how banks determine your credit score. 

Understanding FICO: 

The most common score used by traditional lenders is the FICO score. Created by the Fair Isaac Corporation in 1989, the FICO score helps lenders determine your creditworthiness, as well as any interest rates or fees you’ll pay to get your mortgage. With a range between 300 and 850, you’ll need a favorable FICO score to purchase a home. 

However, while your credit score plays a significant role in the mortgage applying process, lenders will also look at other factors such as your income, property type, assets, debt levels, and more to determine whether you qualify for a loan. With this in mind, it is difficult to say a specific credit score is needed to be eligible for a mortgage, but there is a definite range you’ll want to be within. 

What is a “good” credit score to buy a house? 

As with most loans in life, you’ll need a good credit score to qualify for a mortgage. Generally speaking, a score of at least 620 is required to secure a loan to purchase a house. For most lenders, 620 is the minimum credit score needed to qualify for a traditional loan. However, you can even be approved for a loan with a lower credit score, such as one in the 500s. 

Different scores for different loans 

The credit score needed to qualify for a home mortgage in 2021 depends on the type of mortgage you’re hoping to obtain. Minimum scores required differ whether you’re applying for a loan from the Federal Housing Administration (FHA Loan), the U.S Department of Veterans Affairs (VA loan), or a conventional mortgage loan from a private entity. 

FHA Loans:

If you have a credit score on the lower end or don’t have much saved for a down payment, you may want to consider an FHA loan. FHA loans are insured by the Federal Housing Administration, which makes them less risky and easier to qualify for than other loans.

To qualify for an FHA loan, you’ll need a minimum credit score of 580 to receive a loan with a 3.5% down payment. However, there is no minimum score requirement for loans with a 10% or more down payment. Your lender will obtain all three of your credit scores for a standard FHA loan but will only use your middle score for consideration. If you apply with a spouse, your lender will most likely use the lower of the two middle scores. 

VA Loans:

If applicable, applying for a VA loan is a smart financial move. VA loans don’t require any down payment at all, and they’re available to borrowers with credit scores on the low end. However, you must meet the following criteria to be eligible for a VA loan: 

  • You must be an active member or veteran of the United States Military, or be an active member or veteran of the United States Reserves or the National Guard. 
  • Be a spouse of a military member that died while on active duty, or be a spouse of a military member that died due to a service-related disability.

To qualify for a VA loan, you’ll need to have a minimum credit score of 580. VA loans have their own one-time funding fee, however. The one-time funding fee will vary depending on your down payment but can range from 1.4% to 2.3%. Veterans that receive disability from the VA are not required to pay a funding fee. 

Conventional Loans (Mortgages):

When it comes to conventional mortgage loans, these are typically the best option for individuals with good or excellent credit, due to these loans requiring a higher credit score than FHA and other loans. 

To qualify for a conventional mortgage, you’ll need to have a minimum credit score of 620. Though a higher score is required, conventional loans tend to offer the best interest rates and flexible term lengths, from 8 to 30-year mortgage terms.

How is your credit score determined? 

Understanding that your credit score goes beyond simply knowing what the actual number is. Before beginning the mortgage process, it is important that you also understand what factors go into determining what your credit score is. Understanding how your credit score is calculated will enable you to continuously work on improving your score, helping you plan effective credit repair

While there may be small differences in how each lender calculates your credit score, some form of the standard FICO score is often used as a base. To determine your FICO score, different variables are taken from the credit reports of the three major credit bureaus: Equifax, Experian, and TransUnion. FICO scores range from 300 to 850. 

Credit scores are determined by the following factors: 

  • Payment history 
  • Balance owed
  • Credit history length 
  • Types of credit 
  • New credit 

Can you get a home mortgage with bad credit? 

Although difficult, it is possible to qualify for a mortgage with a low credit score. Lenders will be hesitant since a low credit score means you have a history of carrying debt or missing monthly payments, which makes lending you funds a risk. 

To combat this risk, lenders will typically charge borrowers with low credit scores higher interest rates or may require such borrowers to put down a larger down payment. However, luckily there are multiple ways to restore your credit score. 

What’s the best way to improve your credit? 

Check your credit reports for potential errors:

The quickest way to begin the credit repair process is to check your current credit report for any errors. You can request a copy of each of your credit reports from the three major credit reporting agencies—Equifax, TransUnion, and Experian—for free each year. Due to the ongoing pandemic, all three credit bureaus are also allowing individuals to obtain a free copy of their credit report once a week. 

Once you’ve obtained a copy of your credit report, begin checking it for any potential errors such as payment mistakes, missed payments, or any other items that appear questionable. If you find any mistakes, provide them to the credit reporting bureau and they will remove them for you. Removing such mistakes from your credit report can instantly boost your credit score. 

Pay your bills on time:

The easiest way to prevent any problems with your credit report is to pay all bills on time. Not only will this prevent any errors, but it will also help to improve your credit score at the same time. If you are late on certain types of payments—credit card payments, mortgage payments, student loan payments—are extremely damaging to your credit score. 

Pay down any debt:

Since your credit utilization rate is an important factor in your credit score, paying off any debt will help to improve your credit score. However, it is important to not cancel a credit card as soon as it is paid off since that will potentially increase your credit-utilization ratio—one less credit card means less available credit. 

Work with a credit restoration company:

Credit restoration isn’t as easy as it may seem. If you’ve done everything you can to improve your credit but have yet to see any improvement, consider using a credit repair service

Cool Credit is the leading credit repair service that has helped countless customers reach the 700+ club. Whether it’s helping with quick error reports, or helping you craft a structured credit repair plan, Cool Credit will be by your side every step of the credit restoration process. With low monthly subscription costs, Cool Credit is the perfect solution for anyone looking to purchase a home. 

Visit coolcredit.com today to receive a free credit consultation today! 

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