Getting a mortgage is a bit easier now that lenders are beginning to loosen borrowing standards that excluded many buyers in the throes of the pandemic. But easier doesn’t mean easy, and you will still need the best possible credit score to avoid additional scrutiny from your lender.
A conventional mortgage typically calls for a minimum credit score of 620, but you may be able to get some government-backed loans with a score as low as 500.
Generally, the higher the credit score, the better the interest rate. Still, lenders can impose their own credit requirements, which means your credit score must be in good shape before you buy.
[Read: Best Mortgage Lenders.]
What’s the Minimum Credit Score for a Mortgage?
The minimum credit score for a mortgage depends on the type of loan — conventional or government backed — and the lender. You won’t find a universal credit score for mortgages.
“While it ultimately depends on the loan, the minimum credit score for a mortgage typically ranges anywhere from 580 to 620,” says Gina McKague, founder of McKague Financial. “Different types of loans require different minimum credit scores.”
You can choose between conventional or government-backed loans, which are insured by the Department of Agriculture, the Department of Veterans Affairs or the Federal Housing Administration. The government guarantee protects the lender if you default on your mortgage, which means you could qualify for a government-backed loan more easily than a conventional loan.
If you’re in the market for a mortgage, this table shows the minimum credit score requirements for FHA, VA, USDA and conventional loans.
Minimum FICO Credit Score
580 with a 3.5% down payment; 500 with 10% down
Low- to moderate-income homebuyers
No set minimum; most lenders require at least a 620 credit score, but some will allow a score as low as 580
Veterans buying homes
No set minimum, but a score of at least 640 is recommended
Qualified buyers purchasing homes in designated rural areas
620 to 640
Buyers seeking traditional mortgages
If you want a jumbo mortgage, which exceeds the government’s lending limits for mortgages backed by Freddie Mac and Fannie Mae, lenders will expect a credit score of at least 680. In most states, a jumbo loan is a mortgage that’s more than $548,250.
Many lenders require FICO scores of at least 700 for jumbo loans on single-unit properties, but VA borrowers can obtain them with credit scores of at least 640.
[Read: Best FHA Loans.]
Can You Qualify for a Mortgage With a Bad Credit Score?
A bad credit score won’t be a roadblock to approval, but it often means paying more than if you had good credit.
Generally, lenders view a credit score as a leading indicator of the borrower’s likelihood to repay a loan, says Glenn Brunker, president of Ally Home, a division of Ally Bank.
The lender, “as a result, will ask a borrower with a lower credit score to pay a higher rate, all else being equal,” Brunker says.
Even a small difference in your interest rate can add up to thousands of dollars over time. A 30-year $250,000 loan at 4% interest results in paying $179,674 in total interest; a quarter of a percentage point more costs an extra $13,072 in total interest.
The higher interest rate also translates to a higher monthly payment: You’d pay $1,194 at 4% and $1,230 at 4.25%.
What Other Factors Do Mortgage Lenders Consider?
A good credit score alone will not make you a lock for a home loan. Yes, lenders consider credit when you apply for a mortgage but also take into account your:
— Employment history and income.
— Down payment.
— Tax returns for the last two years.
— Savings and investment accounts.
— Profit and loss, if you own a business.
— Debt-to-income ratio, a measurement of how much of your income goes toward paying off debt each month.
— Negative credit history, including delinquencies, charge-offs or bankruptcies.
[Read: Best Mortgage Refinance Lenders.]
How Can You Raise Your Credit Score to Buy a House?
If you’re worried that your credit score could affect your mortgage eligibility and interest rate, you can try to raise your score. Start by pulling your credit report from AnnualCreditReport.com.
“Ensure there are no credit reporting mistakes on your credit report,” McKague says. “If there are mistakes, make sure to reach out to the credit companies and fix any errors.”
Next, take these steps to improve your credit score before you apply for a home loan:
— Limit any applications for new credit to a three- to six-month window before you buy because hard credit inquiries can knock a few points off your score.
— Pay your bills on time, and use issuer or calendar alerts to keep track of payment due dates. Payment history accounts for 35% of your FICO score and is the biggest factor that influences it.
— Pay down credit card balances if you’re carrying debt. Using too much of your available credit or carrying a balance can indicate that you are overextended and hurt your credit score.
— Keep older accounts open to demonstrate a strong credit history and to help your credit utilization ratio. Closing a card reduces your available credit, which can increase this ratio, an important factor in your credit score.
— Expect to write letters of explanation for negative items on your credit reports.
Allow as much time as possible to work on improving your credit score: ideally, six months to a year before you start shopping for a loan.
“Don’t wait until the last minute, when you might end up losing that dream house, a house you’ve already moved into mentally,” Brunker says.