What Credit Score is Needed to Buy a House?

5paisa Research Team Date: 05 Apr, 2024 03:35 PM IST


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A home is a place of security and peace. Having an own home is a dream for many. However, this action requires certain criteria when you apply for a home. Your credit score is a key determinant in house buying, which banks and lenders consider. A credit report shows credit history.  It lets lenders assess the reliability of a borrower. 

You might think, what credit score do I need to buy a house. This article is an effective guide providing all the information regarding credit scores and mortgages.

How Do Lenders Determine Your Credit Score?

A lender can assess your credit for evaluation. They do this when you apply for a mortgage. Most lenders will look at your credit history before granting the loan. There are three major agencies that offer detailed credit reports. The lender will collect your report from them to analyse your FICO score. 

The number of loan applicants also determines this process.
1. If there is only one applicant, the lenders compile information from each of the three agencies.  They will use the applicant's median score to determine eligibility for a loan.
2. The lender determines each applicant's median score if there are two or more applicants. The lowest score is taken into account. 

Knowing how credit score is determined is crucial. Once you know your score, you can take steps to improve it. You can also understand what loans you can apply for. 

What Credit Score Do I Need to Get a Mortgage?

There is no fixed credit score needed to buy a house. It depends greatly on the type of loan and the loan giver. Each type requires a different credit score for approval. The types the scores are outlined below:   

1. Conventional Loans (620)
A credit score of 620 is the minimum requirement for this type of loan. In some cases, the requirement can be 660 or more. A conventional loan is the most availed mortgage. However, it does not offer any guarantee from a government agency. They satisfy specific criteria proposed by government-sponsored organisations.   

2. Jumbo Loans (700)
A minimum credit score of 700 is required for this loan. A score of 740 is recommended. It is a nonconforming loan. They offer larger sums of money and are usually availed for extensive properties. This also indicates higher interest rates.   

3. FHA Loans (500)
A credit score as low as 500 can be used to apply for these kinds of loans. This is presuming a deal of a 10% down payment. A down payment of 3.5% requires a minimum of 580.  Anyone obtains an FHA loan from a private lender. Nonetheless, the Federal Housing Administration, which oversees these loans, offers insurance.    

4. VA Loans (620)
A VA loan places trust in a lender to ensure the borrower's credit history. It does not require any minimum credit score. Nonethless a minimum score of 620 is suggested. The U.S. Department of Veterans Affairs introduced this loan for military personnel, servicemen, and their families. Different countries have similar benefits for their servicemen under different names and criteria. 

5. USDA Loans (580)
Like VA Loans, these also do not require a minimum credit score. Some lenders accept a score as low as 580. They are targeted at modest to low-income households seeking property in rural areas. 

A good credit score can offer you different options for home loans. It raises eligibility for higher mortgage balances and lower interest rates.  

What Is a Good Credit Score to Buy a House?

When you begin your planning for house ownership, it is essential to know what is a good credit score to buy a house. In general, a credit of 750 and above is considered the optimal score. This will gain you eligibility for different loan types. However, most lenders accept a score of 620 for a mortgage. 

In essence, it depends on the loan type and amount. Lenders can grant home loans for low credit scores of 500. They consider factors like income, Debt-To-Income ratios, and Loan-To-Value ratios. 

How To Increase Your Credit Score Before Buying a House

If you are applying for a mortgage and your credit score is not high enough, there are certain steps you can take to increase your score. The top five steps to effectively improve credit score are:   

1. Timely Bill Payment: This is the most effective way to get high credit scores. Payment history has the highest 35% weightage on credit scores. While granting a loan, a major concern of lenders is whether the loan money will be paid on time. Paying off previous loan bills timely is a testament to your effectiveness as a borrower. A single delayed payment can significantly reduce credit scores. This includes all types of bills, including basic utility ones.    

2. Reduce Debt: Make a note of all your dues, including previous loans. Try and clear them off as much as possible. Updating accounts can eliminate the risk of reduced credit scores. 

3. Retain Old Accounts: Old credit accounts are a testament to how long you have used credit. Lenders can see these to ascertain your credibility. An old credit history can imply that you have been granted loans many times, which in turn means you have been a credible borrower. It is also recommended not to close credit cards when there is a balance on other cards. It can reduce the credit score.     

4. Avoid Multiple Credit Applications: Avoid applying for multiple credit cards. This results in hard enquiries. Too many enquiries can cause low credit scores. A lender can interpret it as a need for money due to subpar financial management.   

5. Review Report: The most understated step is to analyse your credit report. This will give you a clear idea of where you stand. Based on your score, you can take the previous measures to improve your credit score. Also, checking your report might highlight any misinformation or discrepancy. These also result in low scores. Solving these can help maintain a healthy credit score. 

A few simple measures can significantly improve your credit scores and help you avail a substantial loan for your house. 

How Your Credit Score Affects Mortgage Rates

While applying for a mortgage, it is important to know its connection to your credit score. The latter determines the interest rate and terms of a mortgage loan in parts. When a lender assesses your score, they curate a plan accordingly. They consider payment history, credit usage and other factors in a risk-based pricing system. A good credit history can mean lower interest rates and higher loan amounts. 

The Table below offers an outline of how credit scores can impact mortgage rates. 

FICO Score Annual Percentage Rate (2024 rate) Monthly Payment Total Interest paid
760-850 6.38% $1873 $374,133
700-759 6.602% $1916 $389,894
680-699 6.779% $1952 $402,569
660-679 6.993% $1994 $418,019
640-659 7.423% $2082 $449,465
620-639 7.969% $2194 $490,133

Other Things to Keep in Mind While Buying a House

Besides your credit score, your income, assets, Debt-To-Income ratio, and Loan-To-Value ratio are also considered by lenders. The factors are briefed below:

1. Debt-To-Income ratio (DTI)

Lenders use the debt-to-income (DTI) ratio to assess borrowing risk. It is the proportion of your gross monthly income that is allocated to debt payments each month. A healthy ratio of debt to income indicates that debt and income are well-balanced. On the other hand, a high debt-to-income ratio may indicate that a person makes too little money each month relative to their debt load. A DTI of 50% or lower is ideal for mortgages. 

Calculation: If your income is X, and your debt per month is Y, your DTI is Y/X. 

E.g. If income is $600 and debt is $150, DTI= 150/600 = .25 or 25%.    

2. Loan-To-Value ratio (LTV)

Another measure of lending risk that banks and other lenders look at before authorizing a mortgage is the loan-to-value (LTV) ratio. Loan assessments with high loan-to-value ratios are often regarded as higher-risk loans. Consequently, the loan has a higher interest rate if the mortgage is authorized. 
Calculation: The appraised value of the property is divided by the amount borrowed, and the result is an LTV ratio that is stated as a percentage. For instance, 

If the value of a property is $80000 and you make a down payment of $20000, then your Mortgage value is $60000.

LTV= Mortgage Value/Property Value. 
In this case, 0.75 or 75%

LTV decreases with bigger down payments.    

3. Income and Assets

A lender needs guarantees that you continue to have a reliable source of income to repay the debt. For verifying the same, lenders frequently request documents proving a borrower's income, assets, and employment history. The interest rate you are offered may vary depending on how consistent your income is.


Owning a house is a step toward a secure future. It is, in fact, a goal for every individual. However, it is often not feasible to purchase a house based on savings. Different home loans are an effective way to fulfil the dream of owning a home.

Having a healthy credit score is essential to avail benefits of home loans. With the simple guidelines outlined in this article, you can enhance your credit score, receive an appropriate loan, and experience the joy of house ownership.

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Frequently Asked Questions

When there are two or more borrowers, the lenders take the credit score of each applicant from each credit rating agency. They calculate the median score of each borrower, and the lowest score is considered. 

The eligibility margin of credit score varies between lenders. Some lenders may offer loans with scores below 650 after assessing other financial criteria like income and assets. The process is comparatively difficult.