However, lenders look at more than just your credit score to determine your eligibility, so having a 700 credit score won't guarantee approval. A credit score of 700 also might not qualify you for the best interest rate on your mortgage loan, you may still want to work on improving your credit scores to save on interest.
Your credit score provides a snapshot of your overall credit health, so a higher credit score is an indicator that you've responsibly managed your credit in the past. As a result, the higher your credit score is, the less risky you'll appear as a borrower and the more confidence lenders will have that you'll repay your debts as agreed.
The minimum credit score required for a mortgage loan can vary based on the type of loan and the lender offering it. That said, here's a general idea of what you can expect with different types of mortgage loans:
Remember, though, that while meeting the minimum credit score requirement is crucial, it doesn't guarantee that you'll be approved for a mortgage loan. Lenders review several aspects of your financial situation to determine whether you qualify for a loan and what your interest rate will be.
Some of these steps can take some time to start reflecting on your credit score. But if it means shaving even a fraction of a percentage point off your interest rate, making the effort can save you thousands of dollars over the life of your loan.
The table below shows rate estimates from our partner lenders. You can fill in your financial information and select a credit score range of Good to see what kind of mortgage rates are available to you in your area.
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When considering the best credit score to buy a house, many lenders use the FICO (Fair Isaac Corp.) model for credit scores. It grades consumers on a 300 to 850 point range, with a higher score indicating less risk to the lender.
Your credit score helps lenders determine your ability or inability to repay the mortgage (and, subsequently, their risk). Lenders also examine your debt-to-income ratio (DTI), the percentage of monthly debt obligations relative to how much income you bring in.
Generally, the less debt you have, the better off you are when you apply for a mortgage. FICO recommends not opening new credit accounts to increase your credit utilization ratio because each credit request can lower your score slightly. Once your credit has improved, rate shop within a 30-day window. Spreading out the rate inquiries can hurt your score. You can also use our mortgage calculator to estimate your monthly mortgage payments.
You need a good credit score to buy a house. That a solid credit score will better your chances of qualifying for a mortgage sounds obvious to most would-be home buyers. Naturally, lenders want to know you are likely to repay your loan on time, and credit scores are a great indicator of that.
A good credit score to buy a house varies depending on the loan type. In any case, however, the minimum credit score required is between 500 and 700. For most conventional loans, for example, you will typically need a minimum credit score of 620, while some lenders will require a credit score of 660 at least.
While you may be able to secure a mortgage with poor credit, you usually need either good or even exceptional credit to qualify for the kind of terms you are likely to want. For example, your credit score will play a significant role in determining the payment terms on a mortgage loan as well as the interest rate. The reason for this is that lenders use what is referred to as risk-based modelling to determine loan terms.
In other words, if you are more likely to pay your bills on time, as revealed by your credit history, the lower your interest rate is likely to be. If your credit score is damaged in some way, however, you could end up paying more.
For most types of loans, you will need a credit score of at least 620 to purchase a property. While 620 is typically a baseline on conventional loans, however, you will greatly improve your chances of approval if you have a higher credit score.
In fact, borrowers who have a credit score under 650 usually make up a small portion of closed purchase loans. Not only that, but if you have a score of 740 or more, you will get a significantly lower interest rate.
If you have a low credit score, you may want to consider building it up instead of purchasing a property. Because of current economic uncertainty, most lenders have increased the requirements for minimum credit scores on loans.
How to lower PMI. The higher your credit score, the lower the cost of private mortgage insurance (PMI). You will have to pay for PMI if you make a down payment of under 20% on a conventional loan. By contrast, you will have to pay 1.1% PMI if you have a 620 credit rating and make a 10% down payment.
You should look into a mortgage loan insured by the Federal Housing Administration if you have a credit score of roughly 500. However, it is important to know that lenders can decide their own credit score minimums for these types of loans, meaning that you may have a more difficult time getting approved if you meet the bare minimum.
What it means for your down payment. You could potentially make a down payment as low as 3.5% on an FHA loan, but you will need a FICO score of 580, at the very least. For this type of loan, you will need to make a down payment of at least 10% if your credit rating is between 500 and 579.
Having said that, lenders of VA loans determine their own minimum credit scores, which can vary. Generally, however, the minimum is in the mid-600s, and the average credit score for VA home buyers is 711.
Like VA loans, USDA loans do not have a set minimum credit score and lenders can determine their own minimum score. Scoring above 640 on your credit score, however, will provide you the opportunity for streamlined credit processing on this type of loan.
A jumbo loan is for a mortgage to buy a home that is larger than the conforming loan limit. To qualify for a jumbo loan, lenders typically want you to have a credit score above 700, the reason being that lending so much money is considered a high risk. In fact, most lenders will want more than a solid credit score to approve jumbo loans. And you are more likely to get the best jumbo mortgage rates with a FICO score of more than 740.
To improve your credit score to buy a house, you will first want to review your credit report to learn what makes up your score. You can get your report for free from any major credit bureau. Additionally, getting pre-approval will also allow you to check your credit score. Learn more about mortgage pre-approval advice here.
The first step to preparing your credit score to buy a house is knowing where you stand. You can check your credit score at a major credit bureau for free. If your score is already higher than 700, you likely will not have to make many changes before applying for pre-approval.
After receiving your credit report from a national credit reporting agency, you must comb through them for any unrecognizable items or inaccuracies. If you spot any, you can then ask the lender to update that information with the credit reporting agency or dispute them with the agencies directly. This is a fast way to improve your credit score.
The amount of credit card debt you owe versus your total available credit (i.e., your credit utilization rate) is critical to your credit score. While it goes without saying that the lower your credit utilization is the better, however most credit experts would say you should have 30% or less.
You credit score should be responsive to paying down high credit card balances since your credit utilization rate is calculated every month, when your credit card balances are reported to the credit bureaus.
When you apply for credit, lenders typically run hard inquiries on your credit report, which could, in turn, decrease your credit score by less than five points. If, however, you have multiple inquiries in a short time, your credit score could be lowered by much more.
An exception is if you apply to the same type of loan (mortgage, car) multiple times just to compare offers. In a short time, all those inquiries will be combined into one and have less of an impact on your credit score.
Your credit score will need more time to recover if it includes significant negatives such as repossession, collections, or bankruptcy. In those cases, it is better to simply wait until you can rebuild a more positive credit history prior to completing an application for a significant loan.
While there are other factors that indicate to lenders whether you are likely to repay your loan on time, credit scores are at the top of the list. While the definition of a good credit score varies depending on the loan type, you generally want to be between 500 and 700. It is important to know your credit history for the mortgage type that best fits your financial needs.
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