Credit Score Needed to Buy a House, Fairway New England

by Maria John Senior Mortgage Executive

If you are planning to get a home loan, be prepared for your credit to come under scrutiny. Your credit score determines your ability to get a mortgage and the interest rate you'll pay. This is why it’s important to take a look at your credit score and understand all of the ways it will impact the purchase of your future home. Ex- For a FHA loan, You'll need at least a 500 credit score to qualify, but other programs may require a 620 credit score or higher.

What is a credit score?

Your credit score isn’t just for getting a mortgage. It paints an overall financial picture. A higher number corresponds to higher creditworthiness, so a person with a credit score of 850 is almost guaranteed to pay her debts, whereas a person with a 300 is considered highly likely to miss payments.

The credit score requirements for a mortgage can varies, depending on the type of loan and lender.

FHA, VA and USDA loans are all government-backed mortgages. You get a loan from an approved lender and the government guarantees that loan for the bank. A conventional loan isn't associated with one of these government programs. Instead, it's a traditional mortgage product.

The FHA loan credit score requirements are clear-cut, in terms of the minimum score needed. An FHA loan requires a minimum FICO credit score of either 580 or 500 depending on your down payment. With VA, USDA and conventional loans, no firm minimum score is needed but lenders generally expect a FICO score of at least 620.

Factor of Credit Score

FICO credit scores are based on five distinct factors that carry varying weights of consideration:

Payment history, 35%
Credit utilization, 30%
Credit age, 15%
Credit mix, 10%
New inquiries for credit, 10%

The first two factors, payment history and amounts owed, make up 35% and 30% of the total score, respectively. The length of credit history accounts for 15% and the final two factors, new credit and types of credit used, account for 10% each.

What Is a Good Credit Score to Buy a House?

Meeting the minimum credit score requirement for a lender may not always be enough. If your credit score is good, let’s say higher than a 660, then you’ll probably qualify, that assumes you’re buying a house you can afford and applying for a mortgage that makes sense for you. A credit score of 740 or better will put you in a better position to secure the best possible mortgage rates.

When applying for a mortgage, a credit check is a required step. But lenders will also take into account:

Your tax returns for the previous two years.
The amount you have saved in bank and investment accounts.
Business profit and loss, if you own a business.
Your debt-to-income ratio, which is the percentage of your income that goes to debt repayment each month.
Employment history and income.
Your down payment.
Past negative credit history, including delinquencies, charge-offs or bankruptcies.

Tips to Improve Your Credit Score to Buy a House

Here are five reliable ways to raise credit score fast when you want to buy a home.