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The credit score you need for a home loan is probably lower than you think. Lenders use your credit score — and other indicators of your financial strengths and weaknesses — to decide what types of mortgage loans you can get and how much those loans will cost you.
But your credit score is just one of several factors that tell mortgage lenders if you can afford to borrow the amount you’re requesting and if you’re likely to repay it.
Here’s what you need to know about credits scores and home loans:
Minimum credit score needed by home loan type
There’s a different minimum credit score needed for each type of mortgage loan. Here’s a quick overview:
| Loan type | Min. credit score | Description |
|---|---|---|
| Conventional | 620 |
|
| FHA | 500 |
|
| VA | None |
|
| USDA | None |
|
Home loan options by credit score
If your credit score is too low, you might be disqualified from certain home loans. But there are many loan types that are forgiving of low credit scores. No matter your credit, here’s what types of mortgages you might be eligible for:
Bad credit score home loans
A bad credit score is usually one that’s lower than 640. While you might be able to get a home loan with bad credit, the potential drawbacks include:
- Needing a larger down payment
- Paying a higher interest rate
- Spending more money on mortgage insurance premiums
Why would you spend more money on mortgage insurance? You would be paying FHA mortgage insurance premiums for the life of the loan instead of being able to drop them once you have 20% equity — or you might be paying a higher rate for PMI on a conventional loan until your equity reaches 20%.
With bad credit, you might be able to secure an FHA loan, a VA loan, a higher down payment conventional loan, or a USDA Loan:
- FHA loan: Federal Housing Administration loans allow borrowers to have credit scores as low as 500, but you must put down at least 10% if your credit score is 500 to 579. Some FHA lenders only work with borrowers who have scores of at least 580.
- VA loan: These loans have no minimum credit score requirement. However, VA loans are only available to qualifying military service members, veterans, and surviving spouses. Many VA lenders only work with borrowers who have scores of at least 620, and the average VA homebuyer in June had a 720 credit score according to Ellie Mae, a mortgage management software company.
- Conventional loan: These home loans are available to borrowers with bad credit, but you’ll need a credit score of at least 620. Among all conventional home loan borrowers in June 2020, a mere 1% had a credit score lower than 650, according to Ellie Mae. So, depending on the lender, you might even need a higher score.
- USDA loan: Rural mortgages through the USDA are for low- to moderate-income borrowers and have no minimum credit score. The home you want to buy must be in an area whose population is less than 35,000.
See: How Your Credit Score Impacts Mortgage Rates
Fair credit score home loans
With fair credit — a score of 640 to 699, typically — it becomes easier and less expensive to get a mortgage, but it can still be more difficult and more expensive than it would be if you had good or excellent credit.
If you can potentially get any type of mortgage with poor credit, then your chances only get better with fair credit, especially when it comes to two types of loans:
- FHA loans: FHA loans are a popular choice for borrowers with fair credit. Nearly 60% of all FHA loans that closed in June 2020 went to borrowers with credit scores of 600 to 699, per Ellie Mae. With a credit score in this range, you’ll only need a down payment of 3.5% to get an FHA loan. But all FHA borrowers must pay an up-front mortgage insurance premium and monthly mortgage insurance premiums, which means you must be able to afford this additional cost.
- Conventional loans: Once your credit score reaches 680, if you’re a low-income borrower, you might become eligible for a conventional loan with better pricing, even if you can only put down 3%. Mortgage lenders might require you to pay for PMI on any conventional loan with a down payment of less than 20%, but it could be less expensive than FHA mortgage insurance.
Good credit score home loans
Once your credit score climbs into the 700 to 749 range, you’re in the good credit score range for a home loan. Qualifying will usually be easier and loans will most likely be less expensive. All types of mortgages are available once you have good credit:
- Conventional loan: A conventional mortgage becomes easier to get with good credit, even if you’re carrying a lot of debt relative to your income. Instead of needing a debt-to-income (DTI) ratio of 36% or less, you might get approved with a ratio as high as 45%. That means your existing monthly obligations (such as your student loan, car loan, credit card, child support, and alimony) and proposed mortgage payment must total no more than 45% of your gross income. If you’re putting down less than 20% on a conventional mortgage, a good credit score will reduce your PMI premiums.
- Jumbo loan: If your income is high enough, jumbo loans become accessible with a credit score of 700 or higher.
- FHA loan: These loans become less advantageous as your credit score increases because you’re more likely to qualify for a less expensive conventional loan.
- VA loan: Veterans Administration loans are still a great option for those who qualify. The average VA borrower in June 2020 had a credit score of 733 if they were refinancing and 720 if they were buying, according to Ellie Mae.
Excellent credit score home loans
An excellent credit score of 750 and above is the best place to be when you’re shopping for a mortgage. It will help you get the lowest interest rate whether you want a conventional, USDA, VA, or FHA loan:
- Conventional loan: With an excellent credit score, you’ll be able to get competitive bids from multiple lenders on a conventional loan. And, if you’re putting down less than 20%, an excellent credit score will help you get the most favorable PMI premiums.
- USDA or VA loan: Qualifying borrowers with excellent credit might still choose a USDA or VA loan if they don’t have a down payment.
- FHA loan: There’s little reason to get an FHA loan when you have excellent credit. You will probably qualify for a conventional loan and avoid paying the FHA’s mortgage insurance premiums. An exception might be if your DTI ratio, including your proposed mortgage payment, is 45% to 50% and you’ve been rejected by multiple lenders for a conventional loan.
- Income: You’ll need a documented history showing two years of steady income in the same line of work.
- Debt: Your debt cannot consume so much of your income that your mortgage and living expenses won’t be manageable.
- Down payment: The higher your down payment, the less risky you are to lenders. The gold standard is 20% or more.
Find Out: How to Get the Best Mortgage Rates
What mortgage rate can I expect with my credit score?
In the table below, you can see how much your interest rate might be depending on your credit score, how much your monthly payment might be, and how much you’d likely pay in total interest.
This is based on a $200,000, 30-year loan and the interest rates as of Aug. 13, 2020.1
| Credit score | Interest rate | Monthly payment | Total interest paid |
|---|---|---|---|
| 760-850 | 2.577% | $798 | $87,378 |
| 700-759 | 2.799% | $822 | $95,806 |
| 680-699 | 2.976% | $841 | $102,624 |
| 660-679 | 3.19% | $864 | $110,982 |
| 640-659 | 3.62% | $912 | $128,154 |
| 620-639 | 4.166% | $974 | $150,665 |
| Note: All numbers here are for demonstrative purposes only and do not represent an advertisement for available terms. | |||
Improving your credit score can get you a better rate and more
Improving your credit score for a home loan can benefit you in other ways besides lower mortgage rates. For example:
- With FHA loans: A better score can qualify you for a lower down payment — 3.5% instead of 10%.
- With fixed-rate conventional loans: If you have a credit score of 720 or higher and a down payment of 25% or more, you don’t need any cash reserves and your DTI ratio can be as high as 45%; but if your credit score is 620 to 639 and you have a down payment of 5% to 25%, you would need to have at least two months of cash reserves and a DTI ratio of 36% or less.
So, it’s always a good idea to improve your credit score if you can — to ensure you have the best options for a home loan.
- Make on-time payments. Always pay all of your bills on time because on-time payments are a big part of what makes up your credit score.
- Pay down your debt. The lower your utilization percentage, the better. This tells lenders you’re being responsible and not maxing out all your credit cards and loans.
- Don’t open any new accounts if you don’t have to. Opening up a new account could bring your score down slightly because they cause hard credit inquiries. New accounts will also lower the average age of credit you have, so always keep this in mind when you open a new account.
- Don’t close any current credit card accounts. Keeping all of your credit card accounts open for more than just a period of time can help your credit score since it adds to the length of credit history.
- Clear up any errors on your credit report. Always check your credit score and report regularly to make sure there are no fraudulent accounts or mistakes.
Take the next step and get pre-approved
The only way to know for sure what kind of home loan you can get with your credit score is by getting a mortgage pre-approval. Once lenders take a detailed look at your finances and how much you want to borrow, you’ll have a much better idea of your strength as a potential homebuyer.
Credible Operations, Inc. makes getting an instant streamlined pre-approval letter easy. We let you adjust your down payment so that you can figure out how much home you can afford.
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1Calculated using the MyFico loan savings calculator
