Credit scores are crucial to the homebuying process. Not only does your FICO score determine if you can qualify for a loan in the first place, but it will also have an impact on your mortgage terms. See whether you've got the credit score to buy a house with the type of loan you'd prefer.
What credit score is needed to buy a house?
You
don’t need flawless credit to get a mortgage. In some cases, scores can even be
in the 500s. But because credit scores estimate the risk that you won’t repay
the loan, potential lenders will reward a higher score with more choices and
lower interest rates.
For most loan types, the credit score needed to buy a house is at least 620. But higher is better, and borrowers with scores of 740 or more will get the lowest interest rates.
Here are the minimum credit score requirements for several mortgage loans, using estimates from FICO.
#1. Conventional loan
Minimum credit
score required: 620
Conventional mortgage loans aren’t
insured by a government agency, like the U.S. Department of Veteran
Affairs or the U.S. Department of Agriculture. Instead, these loans follow
standards set by government-sponsored mortgage loan companies, Fannie Mae and Freddie
Mac. Conventional loans may be secured by one of these companies or a
private lender. These loans are more affordable and require a minimum of 620
credit score. Down payment amounts vary.
#2. Jumbo loan
Minimum credit the score required: 680
A jumbo loan exceeds the maximum loan
amount limits set by the Federal Housing Finance Agency. These loans aren’t
eligible to be insured by Fannie Mae or Freddie Mac, which means lenders take
on more risk in the case, you default on payments.
#3. FHA loan
Minimum credit the score required: 500
(with 10% down) or 580 (with 3.5% down)
An FHA loan is insured by the Federal
Housing Administration and an option for borrowers who have deemed a higher risk
due to low credit scores and little money
to put toward a down payment. The credit score requirements differ based on how
much money you plan to put down. Borrowers with higher credit scores can
qualify to make a lower down payment.
#4. VA loan
Minimum
credit score required:
None officially, though many lenders
prefer 620
A VA (Veteran Affairs) loan is insured by
the U.S. Department of Veteran Affairs and designed for eligible members of the
military community and their spouses. This type of loan doesn’t require a down
payment. And while the VA doesn’t set credit score requirements, most lenders
will require a minimum 620 credit score.
What if you don't have a high
enough credit score to buy a house?
Having bad credit — or no credit — may
mean you’re unlikely to get a mortgage unless someone you know is willing to
help out. Having a co-signer who has a better credit score could help you
secure the loan.
Another option would be to have "a
friend — or more likely a family member — purchase the home," add you to
the title and then try to refinance into your name when your credit scores
improve sufficiently, according to Ted Rood, a mortgage banker in St. Louis.
If such assistance isn’t available to
you, your best bet will be waiting and working on your credit, But thanks
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