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Credit scores generally range from a low of 300 to a maximum of 850. While the Federal Housing Administration guarantees loans with credit scores as low as FICO 500 with 10% down, a score of 760 or higher qualifies you for the lowest mortgage rates available, no matter the loan product.
Locking in a low mortgage rate can save you thousands of dollars in interest over the life of a home loan and lower your monthly payments. Here’s a look at the credit score you’ll need to buy a house in 2024.
Read more: Best mortgage lenders for bad credit
What credit score is needed to buy a house?
There are five major types of mortgage loans, each with different qualifying minimum credit scores.
Conventional loan
Conventional loans are mainstream mortgages that most lenders offer. You’ll typically need a credit score of 620 or better to qualify. A 3% minimum down payment is available to first-time home buyers. A credit score and down payment of more than the minimum can earn you easier conventional loan approval and a lower interest rate.
Jumbo loan
Buying a more expensive home, generally something more than around $725,000 or so, requires qualifying for a jumbo loan. Lenders typically look for a credit score in the 700s for these higher-value loan amounts.
FHA loan
You can qualify for an FHA loan with a credit score of 500 if you put at least 10% down. With a FICO score of 580 or better, you’ll only need a down payment of 3.5%.
Either way, lenders perceive low-credit-score home buyers as presenting a higher risk, so you’ll likely pay a higher interest rate than someone with a credit score of 620 or higher.
VA loan
The Department of Veterans Affairs backs VA loans to military service members, veterans, and eligible surviving spouses, and it doesn’t mandate a minimum credit score. But the VA doesn’t issue the loans directly; authorized VA lenders do, and they typically look for a credit score of 620 or better.
USDA loans
Houses and properties in rural areas and suburbs may be eligible for USDA loans. Low- and moderate-income borrowers will likely need a credit score of 580 or higher to qualify for a USDA mortgage.
Read more: How to refinance a mortgage with bad credit
How credit scores work
Credit bureaus gamify your debt management skills by awarding points. The higher your score, the more creditworthy you are — at least, that’s the algorithm’s opinion.
Credit reporting agencies such as Equifax, Experian, and TransUnion track your payment history and FICO translates that data into a score. In fact, many scores. FICO has over a dozen scoring models for various industries and purposes.
Here are the factors that are used to calculate the credit score needed to buy a house, according to FICO:
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Payment history (35%): The record of whether you’ve paid on time or not. You’ll want to make sure this is accurate.
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Amounts owed (30%): It’s called “credit utilization” and measures your total debt, including credit card balances and things like vehicle and personal loans. Less is best.
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Length of credit history (15%): Remember when you got your first credit card? FICO does. The longer you’ve had credit, the better.
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New credit (10%): The number of new credit accounts you’ve opened recently. Opening too many can ding your credit.
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Credit mix (10%): The different types of credit you have, such as installment loans, credit cards, and a mortgage. It’s a bit of a mystery how this factors into the formula because the experts say you don’t have to have one of each.
Read more: First-time home buyer tax credit: What to know in 2024
Other factors lenders will consider
Though your number is important, qualifying for a mortgage is about more than your credit score.
Debt-to-income ratio: Your debt is divided by your gross (before taxes and deductions) income. This is a major factor that lenders look at. You’ll want your DTI to be in the low-40% range or less. The mid-30% range is a real sweet spot. For example, total debt (including your mortgage) = $2,000. Gross monthly income = $5,000. DTI = 40%.
Down payment: Some loan programs allow a down payment as low as 3%. The more down payment you can make, the lower your monthly payment will be.
Money in the bank: Lenders want to see cash available to cover the down payment, closing costs, and a little breathing room in your budget.
Employment: Proof of a steady job and a regular income is a must.
Read more: Pennymac mortgage review
How to buy a house with bad credit
The FHA’s low FICO-500 hurdle proves that buying a house with bad credit is possible. The question is: should you?
If your credit score is in the 500 range, taking some extra time to pay all bills on time and in full each month will steadily improve your score and set you up for long-term homeownership success later.
Read more: Is 2024 a good time to buy a house?
How to improve your credit score
It’s simple, but that doesn’t mean it’s easy. The path to improving your credit score is:
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Reduce debt. Pay off credit card accounts, but don’t close them. That will build your available credit.
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Pay on time. Aim for zero late payments.
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Correct any errors on your credit report. You can get your report for free at annualcreditreport.com.
Each month you pay down debt — on time, every time — you’re awarded points. Getting a higher credit score is a long game worth winning.