What Credit Score Do You Need to Buy a House?

You want to buy a house, but you already know that your credit score is on the poor side of the spectrum. The good news, though, is that you might still qualify for certain types of home loans, as different types of mortgages will vary in the minimum credit scores they are willing to accept. So, what range should your credit score be in before you even think about buying a house? Let’s ask a real estate agent in Alpine, TX!

Credit score ranges

First things first, let’s look at credit score ranges. In the United States there are three credit reporting agencies (TransUnion, Experian and Equifax), all of which individually grade your credit history on a range from 350 to 850. Since not all creditors will report to all three, your score from each credit agency will be different. Keep in mind that a score of 700 is generally considered good, while a score below 620 is generally poor:

  • 740 and higher = great credit
  • 680-739 = average credit
  • 620-679 = fair credit
  • 580-619 = poor credit
  • 500-579 = bad credit

FICO score

There are many steps to the home loan process, but checking your FICO score is the first step a mortgage lender takes when checking if you qualify for their loan. Keep in mind that although there are a number of factors that play into home loan qualification, your credit score is the most important one. So, what is the minimum credit score a person needs to purchase a home? The answer depends on the type of home loan you qualify for.

Here are the typical average minimum FICO scores by mortgage types:

  • Conventional loan: 620 and up
  • FHA 203k loan: 620 and up
  • USDA loan: 640 and up
  • VA loan: 620 and up (some lenders will approve a score of 580)
  • FHA loan: 580 and up

Minimum credit score to get a mortgage loan

First time homebuyers with poor credit ratings may still qualify for an FHA loan, as these loans have lower requirements than other loan options. FHA loans are backed by the Federal Housing Administration, but the FHA doesn’t issue loans itself. What they do is insure them in case the borrower defaults on the loan at any point. It is done this way to reduce the risk of the lender accepting a lower credit score to buy a house.

For an FHA loan with the lowest credit requirements, the borrower must have a score of at least 500 with a 10 percent down payment (this is not typical). The average (and most likely) FHA loan goes to borrowers with a 580 or higher credit score with a 3.5 percent down payment.

In general, your credit score will affect the interest rate you can get. For instance, someone with poor credit will have higher mortgage rates and increased closing costs, and therefore a higher monthly payment. And the higher your credit score, the lower all of this will be.

Contact Carpenter Real Estate today to work with a phenomenal real estate agent in Alpine, TX!