Here’s The Average Credit Score You Need to Buy a House

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It’s in your best interest to improve your credit score as much as possible before seeking mortgage pre-approval. 

There’s so much to consider if you’re trying to become a homeowner. What neighborhood should you choose? How many bedrooms do you need? But I’d argue that it’s important to focus on numbers before thinking about these details. Specifically, it’s a good idea to consider your credit score, because the mortgage lenders you talk to definitely will. If this is your first time buying a home, you might wonder what score you should shoot for. Here’s what you need to know.

A bare minimum that may not be

As far as pinpointing a typical credit score requirement goes, 620 is a number you’ll hear thrown around often. This is because 620 is considered the bare minimum FICO® Score for a conventional mortgage loan. Conventional mortgage loans account for 70% of mortgages, and they are the most common offering from lenders of all kinds (banks, credit unions, and online lenders). They’re called “conventional” because they’re not backed by government assistance.

While 620 is considered the bare minimum, if you’re hoping to get a better interest rate, you’ll want to go in with a higher score — generally at least 700. And different lenders have different requirements as well, so don’t assume your 620 credit score will be sufficient for all lenders.

But what if your credit score isn’t so high?

Government-backed mortgages have different requirements

If your credit score isn’t so strong and you qualify for a government-backed mortgage, it’s worth considering your options here.

FHA loans

If you’re a first-time home buyer without strong credit or a large down payment, an FHA loan might just be what you’re looking for. They’re easier to qualify for, requiring a credit score of 580 with a 3.5% down payment. If your credit score is less than 580, but at least 500, you’ll need a down payment of at least 10%. These loans are guaranteed by the Federal Housing Administration.

VA loans

If you’re a current or former service member (or a surviving spouse), you may qualify for a mortgage loan backed by the Department of Veterans Affairs (VA). VA loans technically have no minimum credit score requirement, but it’s best to have at least a 620 (and the higher your credit, the greater your chances of approval). Plus, you may not have to make any down payment at all for a VA loan.

USDA loans

If you live in a qualifying rural or suburban area and your income is below a certain threshold, a USDA mortgage loan could be just the ticket. It’s recommended you have a score of at least 640 to qualify for this loan, which is backed by the U.S. Department of Agriculture and is designed to help borrowers with lower incomes who may struggle to get approved by conventional lenders.

Other factors matter

It isn’t just your credit score that a mortgage lender focuses on. The amount of money you have for a down payment, your income, and your assets will also matter for your approval. Each of the above types of mortgage loans has a different requirement for a down payment, but ultimately, the more money you can put down, the better you will look in the eyes of the lender (and the better off you’ll be at avoiding being underwater on your loan).

Plus, if you can avoid having to pay mortgage insurance by making a larger down payment, you’ll save money on your payments. Buying and owning a home is expensive — but you have options for whether you’d prefer to spend more upfront (in the form of a larger down payment) or over time (via mortgage insurance and a higher interest rate from your lender).

Improve your score with these tips

If you have some time before you plunge into a home search, try the following to improve your credit score:

Go through your credit report: You can get free weekly credit reports through the end of 2023, so pull your reports with the three major credit bureaus and spend some time checking for errors and old delinquencies that should have fallen off your report. You can have them removed for a score boost.Improve your payment history: Payment history makes up 35% of your credit score, so if you’ve been lax in the past, now is your chance to buckle down and pay your creditors on time every month. Setting up auto-pay could help here.Pay off debt: While you certainly don’t have to be debt free to buy a home, the more debt you can pay off (especially in the form of high-interest debt like credit cards), the better your finances will look to a lender.

It pays to do some financial legwork and become a stronger buyer ahead of seeking a mortgage loan. Even if you’ve got a 620 credit score now and intend to apply for a conventional loan, improving your score will open doors to better interest rates and a wider variety of lenders competing for your business.

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