What credit score do I need to buy a home?

The higher your credit score, the better the loan terms you’ll likely get. But you don’t need perfect credit to buy a home. Generally, a score of 620 or above can get you in the door with a conventional loan. 

FHA loans, which have more relaxed conditions, accept credit scores of 580 and above, and some lenders can accept a score as low as 500, but that will likely require a bigger down payment. The better your score, the better your chances of securing a good interest rate, so it’s worth aiming higher if you can. Check out our FHA and Conventional loan guide for more info here.

Should I improve my credit before getting a mortgage?

Fixing your credit score isn’t an overnight thing, so it might not make sense to wait too long if you already have credit that qualifies for a loan. But if you want to qualify for a lower interest rate, it can help to pay down any high credit card balances first. Here’s where utilization comes in—this is the percentage of your available credit that you’re actually using. Keeping your utilization under 30% of your total credit limit is key because it shows lenders you’re not maxing out your cards. 

Paying off your debts will also boost your score, as it lowers your overall credit burden. Plus, avoid opening too many new credit accounts at once; it can ding your score with too many hard inquiries. If you spot any errors on your credit report, dispute them to get those fixed. Stick with these habits, and over time, you’ll see your score climb.

If you have a credit score below 580, it could be well worth the time to increase your score. It’s totally doable with some discipline and patience. Start by paying your bills on time, every time. 

What are lower credit score loan options?

Low credit barrier loans are a great option for people who are working with a less-than-perfect credit score. These include FHA loans, VA loans, and USDA loans, which are designed to be more flexible with credit requirements, often accepting scores in the 500-580 range. While you may see a higher interest rate or need to pay mortgage insurance, these loan offerings make it possible to get approved and move forward with your home purchase even if your credit isn’t sky-high. Having loans with lower credit score restrictions is a helpful way for more people to achieve homeownership in the United States.

What is the average credit score for people buying a house?

When it comes to buying a home, credit scores tend to be a bit higher. Fannie Mae says that first-time homebuyers usually have an average credit score of about 746, and overall homebuyers average around 754. (Fannie Mae, established in 1938, supports the mortgage market by buying and guaranteeing loans from lenders. This helps lenders offer more mortgages to homebuyers. While Fannie Mae doesn’t lend money directly to buyers, it works with lenders to make home loans more accessible through a secondary market.)

Credit Karma’s data shows that their members with mortgages have an average score of 705. This is way above the minimum score of 620 needed for conventional loans. Having a higher credit score generally means you can snag better loan terms and lower interest rates, which is always a win! 

However, if your score is not in the 700s, don’t stress, you can definitely buy a home with one lower than the average.

What are credit score ranges for homebuyers?

Here’s how credit scores for homebuyers typically break down:

• Excellent (750+): You’re in a prime position for the best rates and terms.
• Good (700-749): You’re likely to secure a favorable rate.
• Fair (650-699): You may see slightly higher interest rates, but you’re still well within reach of a mortgage.
• Moderate (600-649): While options might be more selective, there are still opportunities available.
• Challenging (below 600): You can still obtain a loan, though it may come with higher costs and more specific terms.

Is my FICO score the same as my credit score?

So, when you’re talking about credit scores for buying a home, it’s usually your FICO score that’s in the spotlight. FICO is the one most lenders rely on, even though there are other scores like VantageScore out there. Basically, if someone mentions your credit score in the home buying world, they’re mostly talking about your FICO score.

Will my credit score drop when I buy a house? 

It’s pretty normal for your credit score to dip a bit after you buy a house. When you take on a big mortgage, it can temporarily lower your score due to higher credit utilization and those hard inquiries from applying for the loan. But don’t worry, this dip usually doesn’t last long.

The good news is that making your mortgage payments on time will help your score bounce back and even improve over time. Payment history is a big deal for your credit score, and consistently paying on time shows you’re managing your finances well. Plus, having a mortgage can diversify your credit mix, which can boost your score. So, while there might be a small dip at first, sticking to good payment habits will set you up for a stronger credit score in the future.

Can I get a mortgage with bad credit?

If you’re interested in getting a mortgage, and seem to be rejected for pre approval again and again, it’s often due to a low credit score (below 580). This can be frustrating, but you still have options. 

Some people use a cosigner on the loan, which is someone who will accept legal responsibility for the debt if the owner is unable to make loan payments. Sometimes a partner or family member will be willing to cosign a mortgage to help someone they trust and is working to rebuild their credit. 

If you’re ready to start your journey to homeownership, get pre-approved with Tomo today.