If you are in the market to buy a home this year, you probably already know that one of the most important factors affecting whether or not you’ll qualify for a mortgage (and secondarily what sort of interest rate and loan terms you’ll qualify for) is your credit score. So, what credit score is needed to buy a home? Well, that depends on a lot of factors, which is why we suggest reaching out to an experienced mortgage lender with any questions you have.
Some of the most popular mortgage loan programs backed by the federal government, including USDA loans, VA loans and FHA have very low or no minimum credit score requirements, but that minimum requirement can be misleading as lenders won’t generally lend to individuals with credit scores in the low 500’s or below. That said however, there are lenders who specialize in mortgage loans to individuals with less-than-perfect credit and who will work with people whose credit has been damaged in the past.
For FHA loans: The Federal Housing Authority, has a credit score minimum of just 500 in order to be eligible to apply for an FHA-backed mortgage loan. A report found that in 2013 however, borrowers with scores in the low 500’s accounted for less than 1% of the total number of mortgages written – so it’s clear that just because you meet their minimum score requirement, you won’t necessarily qualify for a loan. The FHA requires that an applicant’s credit history be clear for the 12 month period prior to any loan, so if you have items in collections, you need to clear those before applying for an FHA mortgage loan.
For VA loans: According to the US Department of Veterans Affairs (the VA), the federal governmental agency which backs the VA loan program, there is no minimum credit score required to apply for a VA mortgage loan. Instead, the VA requires lenders to review an entire loan file and applicant profile. Many VA-approved vendors have their own credit score requirements, and so you’ll need to work with your preferred lender to determine what their minimum credit score requirement is. Some lenders will require a 620 score as the minimum credit score, while others may offer more flexibility depending on your total financial profile.
For USDA loans: Loans to purchase rural properties backed by the US Department of Agriculture are known are USDA loans, and they feature no minimum credit score requirement. Like all the programs above though, that doesn’t necessarily mean that all lenders will work with all credit profiles. Mortgage loan underwriters want to extend loans to individuals most likely to repay the loan and so your complete credit profile will be very important.
For most conventional loans, lenders will require a base minimum credit score of at least 620 in order to qualify for a mortgage and buy a home, with higher scores being required to qualify for today’s best terms and rates.
If your credit score isn’t where you would like it to be, we recommend taking some time to review your credit history and work on repairing your score. Lenders want to know that you will repay the loan they extend you and one of the best ways to show them you will do so is by presenting a solid history of repayment of the sums you have borrowed.