What Credit Score Is Needed to Secure a Mortgage?

I co-owned my first home when I got married in my 20s. We both had high credit scores and were fortunate to secure a low interest rate on our mortgage.

Because homes cost a significant amount of money, lenders check your credit score when deciding whether to offer you a mortgage. Understanding your financial health and ability to pay back debt influences whether you can become a homeowner.

Knowing what credit score is needed to secure a mortgage helps you prepare for the homebuying process. The following information can help.

What Is the Minimum Credit Score Needed to Secure a Mortgage?

A credit score of 620 or higher is typically needed to qualify for a mortgage. However, some programs, terms, and conditions require a minimum credit score of 640, 660, or 720.

Your Fair Isaac Corporation (FICO) score, which ranges from 300 to 850, represents your ability to manage previous credit and loans. You might be able to check your FICO score on a recent credit card statement, on a credit card issuer’s website or app, or through your bank. A higher score indicates trustworthiness in borrowing and repaying money, improving the likelihood of being approved for a lower-interest mortgage.  

Some lenders consider offering a mortgage to individuals with a lower credit score if they meet other criteria. Examples include providing a large down payment, holding the same job for at least two years, and having a strong income history.

What Are the Credit Score Requirements Based on the Type of Mortgage?

The minimum credit score requirement varies by the type of mortgage:

• Conventional loan: A credit score of at least 620 is generally required for a conventional loan.

• Federal Housing Administration (FHA) loan: A credit score of at least 580 is typically needed to secure an FHA loan. However, someone with a credit score of 500 might get approved if they have a 10% down payment and pay mortgage insurance premiums.  

• Veterans Affairs (VA) loan: Although the Department of Veterans Affairs is not a lender, it guarantees a portion of the loan so veterans, active service members, and eligible surviving spouses can more easily secure mortgages. Each lender sets its minimum credit score, typically around 620, and potentially lower with a large down payment.

• United States Department of Agriculture (USDA) loan: The USDA guarantees mortgages for certain homes in eligible rural areas. Most lenders require a credit score of 640 or higher.

What Is a Good Credit Score for Purchasing a Home?

You should be able to secure attractive mortgage terms with a credit score of at least 700. However, a credit score of 740 or higher typically qualifies for the best interest rate. Some products and programs offer improved interest rates for FICO scores above 760 or 780.

You might be offered a mortgage with a higher interest rate if your credit score is below 700. Therefore, improving your credit score could lower your interest rate.  

How Can You Increase Your Credit Score Before Shopping for a Mortgage?

The following strategies might help you improve your credit score:

1.  Pay down your debt. Lowering the balances on your credit cards can increase your credit score, especially if you are close to your credit limit. Pay off your credit cards for even better results.

2.  Maintain your credit accounts. The amount of credit you use compared to the total amount, known as your credit utilization ratio, impacts approximately 33% of your FICO credit score. Keeping your total debt under 30% of your total credit limit and maintaining old accounts can improve your credit score.

3.  Avoid applying for credit cards and loans. New credit applications typically create hard inquiries on your credit reports, which can temporarily lower your credit score.

4.  Keep your debt payments current. Late or missed debt payments can lower your credit score. Conversely, on-time debt payments can improve your score.

5.  Verify your credit reports are accurate. Visit AnnualCreditReport.com to check for mistakes on your Equifax, Experian, and TransUnion credit reports. A report of a delinquent bill that you paid could lower your credit score. Lines of credit you didn’t open could indicate your identity was stolen (which happened to me many years ago and took a significant amount of time to fix; fortunately, I didn’t end up owing any money). Dispute any errors to have them removed from your credit report.

How Can You Secure a Mortgage with a Lower Credit Score?

The following tips can help you secure a mortgage with a lower credit score:

Speak with Multiple Lenders

• Shop around to compare mortgage eligibility requirements and interest rates.

• Look for a lender who is more accepting of your financial position and will offer a lower interest rate.

• Prepare to discuss your financial information and why you would be a good borrower.

• Demonstrate reliable income.

• Provide a significant down payment.

Consider an FHA Loan

You might qualify for an FHA loan if you have steady employment, strong income, and a down payment of at least 10%. Making on-time payments for 11 years can remove the mortgage insurance requirement.

Plan to Refinance

Pay down your debt and improve your credit score before considering refinancing your mortgage. Keep in mind that although your interest rate and monthly payment might be reduced, your loan term would restart.

Look for a Co-Signer

A trusted family member or friend might co-sign to help you secure a mortgage. This person would take on the mortgage if you default on the payments. Be mindful that not keeping up with the payments would damage your and the co-signer’s credit.

*This information is for educational purposes only.