What credit score do you need to buy a house?

Loans aren’t as easy to come by as they once were. Thanks to threats of a looming recession and the recent closures of Silicon Valley and Signature banks, many lenders are tightening their purse strings — and being more careful than ever about who they loan money to.

This is particularly true of mortgage lenders. In fact, mortgage credit supply is currently “close to its tightest levels since 2013,” according to the Mortgage Bankers Association.

Now that doesn’t mean it’s impossible to get a mortgage these days, but it does mean lenders will look long and hard at your application and, in particular, your credit if you want to buy a house.

So what credit score is needed to buy a house? And will a less-than-stellar score nix your homebuying (or refinancing) dreams altogether? Here’s what you need to know. 

What’s a good credit score to buy a house?

The exact credit score you’ll need to buy a house will depend on what loan program and lender you use. FHA loans, for example, allow for credit scores as low as 500, but many lenders require higher scores than that to reduce their risk. This is why it’s important to shop around and compare a few different lenders, especially if your credit score is on the lower end of the spectrum (which ranges from 300 to 850). 

Here’s a look at the minimum credit score to buy a house by loan program:

  • FHA loan: 500 with a 10% down payment; 580 with a 3.5% down payment

  • Conventional loan: Typically 620

  • Veterans Affairs (VA) loan: No official minimum, but most lenders require a 580 to 620 

  • USDA loan: No official minimum, but most lenders require a 620 to 640

Keep in mind that lenders don’t just look at your score — but your entire credit report, too. 

As Shashank Shekhar, founder and CEO of InstaMortgage, explains, “More than the credit score itself, the credit profile is more relevant. Credit profile refers to the quality of your credit score and includes derogatory items such as late payments, collections, and judgments. If you have several derogatory items, it shows the lender that you’re not worth the risk of getting a mortgage, and your loan application might be declined.”

How your credit score affects your mortgage rate

Your credit score doesn’t just impact your ability to qualify for a mortgage. It also influences what interest rate you get, too. 

“Generally speaking, lenders offer their best rates to people with scores of 780 or higher,” says Jacob Channel, senior economist at LendingTree. If your score is 670 or higher, though, he says, “You can generally expect to get offered a good — though not necessarily the lowest possible — rate.”

Here’s a look at how mortgage rates look across different credit score buckets. (These are for 30-year loans as of April 14, 2023).

Data courtesy of FICO and Curinos LLC

As you can see, a low credit score can mean a much higher monthly payment. Per the table above, you’d pay $317 more per month with a 639 score than you would a 760 one. You’d also pay a whopping $114,000 more in long-term interest.

How to get a mortgage with bad credit

Having bad credit doesn’t necessarily mean you can’t get a mortgage, but it can definitely make things more challenging — and more expensive. Fortunately, there are a few things you can do to improve your chances. 

First, work on increasing your down payment. This reduces your loan amount and the amount of money the lender has on the line. 

You can also bring in a co-signer — someone who agrees to cover the monthly payments if you fail to make them. If you choose this route, make sure you pick someone with a high credit score, as they’ll need to be on the mortgage application with you. The higher their score, the more it will help your application (and the interest rate you ultimately get).

You should also shop around for your mortgage. Every lender has different loan programs, qualifying requirements, and appetites for risk, so shopping around can help you find one that fits your needs and credit profile. You might also consider using a mortgage broker. They can recommend possible lenders and even shop around on your behalf.

Tips to improve your credit score before buying a house

Though it is possible to get a mortgage with not-so-great credit, if you want a low rate and an easier time qualifying, increasing your credit score first might be smart.

“It may not be what people want to hear, but the best thing a person with bad credit can do to make getting a mortgage easier is to hold off on getting a loan, and instead spend time working on their credit score,” Channel says. “Once their score is improved, getting a loan will likely be considerably less of a hassle.”

To improve your credit score, you should:

  • Pay your bills on time every time

  • Avoid opening new credit cards or loans

  • Reduce your debts if possible

  • Ask for a credit line increase

You can also become an authorized user on a family member’s credit card (someone who has low balances and makes their payments on time) or work to reduce your own credit card balances.

“Bringing your balances to under 30% — preferably under 10% — of the credit limit could quickly boost your score by 10 to 40 points,” Shekhar says. 

Bottom line

Your credit score plays an important role in the mortgage process. Not only will it impact what loans you qualify for, but it will also influence your rate and long-term costs, too. 

If you’re worried about how your credit score could impact your mortgage options, work on improving your score before applying. You can also consult a credit counselor for help. They can guide you on possible strategies for increasing your score.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at [email protected].

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