If you are buying a house, your credit score will be one of the deciding factors lenders use to approve you for a home loan. Typically, a good credit score to buy a house is 740 and above even though conventional mortgages require a minimum credit score of 620. A credit score in the 740s and higher allows you to borrow more money at a lower interest rate and better terms. Some lenders might also allow you to put down a small down payment especially when you have an excellent credit score.
Not every home loan requires a high credit score. Matter of fact, most loans such as VA loans, FHA loans, and USDA loans require credit scores in the 500 and lower 600s. Conventional loans require a minimum credit score of 620 while Jumbo loans require a minimum score of 640.
While every lender’s credit score requirement is different, you should always know the credit score needed for the type of loan you need and how your score affects your loan application.
Here is everything you need to know about your credit score when buying a house.
What is a good credit score to buy a house?
A credit score is a three-digit number that ranges between 300 and 850. Lenders use your credit score to assess your creditworthiness. The higher your credit score is in this range, the better your credit score gets. While there is no magic number for a good credit score to buy a house, having a 740+ score gives you a competitive advantage compared to other borrowers.
Having a good credit score when buying a house or taking out other loans indicates that you are trustworthy and carry less risk. That is why lenders favor borrowers with high credit scores when evaluating loan applications and deciding interest rates. While it is best to have at least a 740 credit score when purchasing a home, you can still get approved for a mortgage with a credit score in the 600’s depending on the type of loan you want.
For example, if you want a conventional mortgage, you need at least a 620 credit score to qualify for the loan. If you are getting a USDA loan, the USDA does not impose the minimum score requirements. However, most lenders require a credit score of at least 640 and above for USDA loans.
Again the type of loan you are getting and the lender dictates the credit score requirements.
You might also like: How to Raise Your Credit Score in 30 Days?
Ranges of credit scores
When looking at your credit score, there is no magic number for getting approved for a mortgage. That is why the credit score is divided into different ranges which categorize borrowers based on their creditworthiness. Before you submit your loan application, check your credit score to see if you have the score needed for the loan.
Being in the top two ranges (Very Good and Excellent score) puts you into the category of the best borrowers due to carrying less risk. If your credit score is not in the range needed for the type of loan you want, increase your score before submitting your loan application. this will strengthen your credit application and allow you to qualify for higher amounts, lower interest rates, and better terms.
Here are the ranges of credit scores.
Poor credit score: 300-579
Fair credit score: 580-669
Good credit score: 670-739
Very good credit score: 740 – 799
Excellent credit score: 800 – 850
You might also like: 6 factors that affect your credit score
Why does a credit score matter?
Lenders rely on your credit score to decide the risk of lending you money. Your score shows lenders your credit history which is a perfect way to understand your habits with credit and loans. A good credit score indicates that you are a responsible borrower and have good financial habits. That means you pay your bills on time, avoid excessive spending on your credit account, and don’t carry too much debt.
A bad credit score, on the other hand, shows lenders that you are irresponsible and violate the terms of your loans. For example, you might have missed payments, foreclosure, bankruptcy, charge-offs, or other other negative items on your credit reports. Having this information on your credit reports becomes a red flag and you will more likely get denied a loan. No one wants to do business with you if you cannot pay your loan.
Having a good credit score when buying a house gives you bargaining power. You can choose the best lender, negotiate the lowest interest rate, have a small down payment, and get the best terms. Your loan application also gets a higher approval rate when you have a good credit score.
You might also like: How to get an 800 credit score the easy way?
What credit score do you need to get a mortgage?
You will easily qualify for any mortgage if you have a 740 and above credit score. But, you don’t need a high credit score to qualify for a mortgage. Typically, the credit score requirements depend on the type of mortgage you are getting, your lender, the home value, and the location.
What credit score do you need for the conventional mortgage?
Conventional mortgages are some of the loans that require a higher credit score. Typically, you need at least a 620 credit score to qualify for a conventional mortgage. Some lenders, however, require a minimum credit score of 660 or higher for a conventional mortgage.
What credit score do you need for a FHA loan?
FHA loans usually require a much lower credit score compared to conventional mortgages. The credit score requirements are usually affected by your down payment. If you have a 10% down payment, you will need at least a 500 credit score or more to qualify for an FHA loan. If you only have a 3.5% down payment which is the minimum down payment requirement for FHA loans, you will need a credit score of 580 or higher.
What credit score do you need for a VA loan?
The Federal Housing Administration Loans or FHA loans are home loans insured by the government and offered by private lenders such as banks and online mortgage companies. While these loans are insured, lenders still impose credit score requirements to minimize the risk of default. VA loans usually do not require a minimum credit score. However, some lenders might require a minimum of 620 credit scores to qualify for a VA loan just like conventional loans.
What credit score do you need for a USDA loan?
USDA loans are loans offered by the U.S. Department of Agriculture to low-income rural residents who cannot afford conventional loans. One of the benefits of USDA loans is that there are no down requirements to qualify for these loans. The downside of USDA loans, however, is the income requirement and you can purchase a house in specific locations.
If you are purchasing a house with a USDA loan, you need a minimum credit score of 580. However, some lenders might require a minimum credit score of 640, according to the Rural Development U.S. Department of Agriculture.
Is a 700 credit score good for buying a house?
While a 700 credit score is not the best you can have when buying a house, this score is good enough to qualify for a mortgage. If your score is only 700, ensure that other credit application requirements are solid. You need a great income, a low debt-to-income ratio, and a good credit history to strengthen your credit application.
However, a 700 credit score might be more than enough depending on the type of loan you need. For example, VA loans, FHA loans, and USDA loans require a minimum credit score in the upper 500s and lower 600s. If you have a 700 credit score you will already be standing out if you are getting one of these loans.
You might also like: Get a 700 credit score in 7 simple steps
How to increase your credit score?
If you want to buy a house but don’t meet the credit score requirements, increase your score before applying for the loan. To increase your credit score, start by paying all your bills on time and lower your credit utilization. Paying your bills on time shows you are financially responsible which means there is less risk in lending you money. A low credit utilization shows you don’t rely on debt to finance your expenses.
You should also avoid excessive borrowing as each credit application might result in a hard inquiry on your credit report. Each hard inquiry lowers your credit score by 5 to 6 points on average. If you know a friend with excellent credit, request to become an authorized user on the account. This way, you can benefit from past and current account activities. Finally, clean up your credit reports to get rid of errors, and inaccurate reporting, and remove negative items. Your credit score should increase if you consistently apply these tips.
More credit score tips
How to get an 800 credit score the easy way?
