Takeaways
- Buying a new home requires a high credit score and a down payment.
- Savers store down payments in high-yield savings and certificates of deposits.
- Buyers should monitor their two main credit scores: FICO and VantageScore.
- Borrowers with excellent credit scores secure the lowest interest rate mortgages.
- Mortgage lenders evaluate your credit scores and view your finances holistically.
Buying a home can be one of the most significant financial decisions you ever make. Your credit score, a key factor in securing a mortgage and determining the interest rate, plays a crucial role in this process. Even if your credit score isn't the best, mortgage options are still available.
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What Credit Score Do You Need to Buy a Home?
The credit score you need to buy a home depends on the type of mortgage you are applying for. Generally, the higher your credit score, the better your chances of getting approved and securing a lower interest rate. Most lenders use the FICO credit score, which ranges from 300 to 850.
Here is a basic breakdown:
- Excellent (740–850) - Best loan terms and lowest interest rates.
- Good (700–739) - Strong approval chances with favorable rates.
- Fair (620–699) - Qualifies for many higher interest rate loans.
- Poor (below 620) - Limited options, may require special loan programs or larger down payments.
>> Shopping for a home? Consider securing a Pre-Approval Letter
Smart Tip:
According to Experian, in 2023, only 22% of consumers had an excellent credit rating.[1]
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Home Loans and Credit Score Requirements
Different loan types have different minimum credit score requirements. Generally speaking, here’s how it works:
1. Conventional Loan
Conventional loans are not backed by the government and are offered by private lenders like banks, credit unions, or mortgage companies. They typically require a higher credit score, especially for lower down payments.
- Minimum Credit Score: 620
2. Jumbo Loan
Jumbo loans exceed the conforming loan limits. In 2025, the Federal Housing Finance Agency (FHFA) will have a conforming loan limit of $806,500 for single-family homes.[2] Lenders require higher credit scores and more financial documentation for anything larger than that.
- Minimum Credit Score: 700–720
3. FHA Loan
Backed by the Federal Housing Administration, FHA loans are designed for first-time buyers or those with lower credit scores. There is no income cap to qualify for an FHA loan. There may be limits to the amount you can receive from this type of loan based on where the home is located and the local cost of living.
- Minimum Credit Score: 580 (with 3.5% down) or 500 (with 10% down)
4. VA Loan
The Department of Veterans Affairs backs VA loans, which are available to eligible veterans, active-duty service members, and some surviving spouses. These loans typically do not require buyers to have a down payment.
- Minimum Credit Score: There is no official minimum, but most lenders require at least 620
5. USDA Loan
Backed by the U.S. Department of Agriculture, USDA loans are for rural and suburban buyers. They offer zero-down payment options. This loan option does have income limits, which can change based on where you live.
- Minimum Credit Score: 640
How to Increase Your Credit Score
Don't lose hope if your credit score is not where you want it to be. You can take steps to improve it before applying for a mortgage. You can see significant improvements with discipline and the right strategies.
- Pay Bills on Time: Your payment history makes up 35% of your FICO credit score. Always pay on or before the due date.
- Reduce Debt: Lower your credit card balances to improve your credit utilization ratio (keep it below 30% of your credit limits for the best score).
- Avoid New Credit Applications: Each hard inquiry can slightly lower your score. Limit new credit until after your mortgage closes.
- Check for Errors: Review your credit reports for mistakes and dispute any inaccuracies.
- Keep Old Accounts Open: The length of your credit history matters. Keep older accounts active.
Improving your credit can take time, but even small increases can lead to better loan terms and lower interest rates.
>> Struggling with debt? Read more about The 30% Rule
Lender Considerations When Approving Loans
While a healthy credit score is essential, lenders also analyze other factors when deciding whether to approve your mortgage application, including:
- Income: A stable and sufficient income shows you can afford your mortgage payments. Boost your gross income with a side hustle or apply for a new job.
- Debt-to-Income (DTI) Ratio: Lenders prefer a DTI ratio below 36% but may allow up to 43%, which means your monthly debt payments should not exceed 36%- 43% of your income. If you exceed this DTI ratio, consider debt relief.
- Down Payment: A larger down payment reduces risk for lenders and may help offset a lower credit score. Many lenders require down payments of 20% or more.
- Employment History: Most mortgage lenders want to see you have a consistent work history, with steady paychecks, for at least two years. This shows them you can earn a consistent income and finance your debt.
- Savings and Assets: Having excess cash reserves, slush funds, and other investments strengthens your application.
>> Ready to buy a home? Learn about hiring a Buyer’s Agent
Save for a Down Payment With a CD:
Smart Summary
The credit score you need to buy a home depends on the type of mortgage you want. Improving your credit score before applying can lead to better rates and more loan options. Lenders also consider your income, debt-to-income ratio, down payment, and employment history. Getting your personal finances in order before you apply for a mortgage is a smart money move.
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(1) Experian. How Many Americans Have an 800 Credit Score or Greater? Last Accessed May 3, 2025.
(2) Federal Housing Finance Agency. FHFA Announces Conforming Loan Limit Values for 2025. Last Accessed May 3, 2025.
