What Credit Score Do You Need to Buy a House in 2023?
Updated: Jan 3
Many first-time home buyers worry that their credit scores are too low to buy a home. In this article, we'll cover the scores needed for many common loan types and some tips on improving your credit.
Mortgage lenders are bound by specific rules which determine what credit scores you need to buy a house, and those rules vary by your loan type. Below, we cover the most common loan types and credit score guidelines.
Conventional Loan
Conventional loans are the most common home loan and have a hard minimum credit score of 620. Conventional loans are issued through mortgage lenders, mortgage brokers, and credit unions. Conventional loans are the default option for home buyers because of their low rates and simple approvals.
Conventional loan approval requires:
A mortgage application
Lender-required documents
Credit history
Current credit score
FHA Loan
FHA mortgages are the original mortgage loan, developed by the Federal Housing Administration in the 1930s to keep homeownership attainable. FHA loans are more inclusive than other loan options because of their relaxed down payment requirements, and because the FHA doesn’t change your interest rate based on your credit score.
In fact, FHA loans don’t require home buyers to have a credit score at all, although many lenders want to see a minimum score of 580.
FHA loan approval requires:
3.5% down payment
Loan lengths must be 15 years or longer
VA Loan
VA loans are backed by the Department of Veterans Affairs. VA loans are affordable home loans for active-duty servicemembers and veterans.
Because the VA guarantees its loans against losses, mortgage lenders make VA loans at very low-interest rates and, historically, VA mortgage rates are often the lowest of all available mortgage loans. VA loans don’t require a down payment.
VA loans:
Are available as 100% mortgage loans
Have lower interest rates as compared to conventional loans
Require a Certificate of Eligibility (COE)
Get your Fairway Advantage Pre-Approval by clicking here!
USDA Loan
USDA loans are government-backed mortgages available for homes outside of densely-populated areas. The USDA program covers about 91% of the U.S. including rural areas, small towns, and many suburbs.
USDA mortgage loans don’t require a down payment and offer interest rates that average 0.50% lower than conventional loan rates. USDA guidelines require credit scores of at least 620, but exceptions can be made for home buyers with extenuating circumstances.
USDA loans:
Can only be used for non-urban home purchases
Have no down payment requirements
Require a credit score of 620 or higher
Jumbo Loan
Jumbo loans service home buyers whose mortgage loans are too large for the local mortgage loan limit. There is no specific credit score requirement for a jumbo mortgage, though higher scores are more likely to be approved and may be assigned a lower interest rate.
Jumbo loans can be used for a variety of property types and:
May require a down payment of between 5% and 25% depending on credit and income
Require higher credit scores
Are not government-backed
5 Ways To Improve Your Credit Score
To boost your credit score for your upcoming mortgage approval, first, check your credit report to learn what’s comprising your score.
Check your credit score for free by clicking here.
If you’ve never reviewed a credit report, it can feel overwhelming. There are public resources that can help you, or you can ask for help in our chat. We’ll consider the factors that impact your credit score and discuss ways to make improvements, like opening a secured credit card account or shifting balances between charge cards.
Here are the best habits to improve your credit score:
Pay your bills on time — Payment history accounts for 35% of your FICO credit score
Lower your credit utilization — Increase your debt payments temporarily or request a credit limit increase
Avoid new credit lines — Hard credit inquiries are performed for a new line of credit and can affect your credit score for the next six months
Don’t close old accounts — Keep old credit lines open and catch up on old payments or delinquencies
Be patient — It can take up to 6 months to make big changes in your credit score, so do the work and wait it out
Credit scores don’t improve overnight, and keeping your debt to a minimum pays off when you’re planning to buy a house. Even small credit score improvements can reduce the interest rate you get, which saves you tens of thousands of dollars in the long run — enough to fund a retirement or college tuition!