The Credit Score You Need to Buy a House, According to FICO

Interest rates to buy a home are at a historic low so this could be a great time to buy a house. It’s important to know what credit score you need to buy a home. 

It’s also important to understand how a better credit score could potentially save you lots of money on interest payments.

What follows are typical credit score requirements for mortgages and information on how credit scores can influence mortgage interest rates, from myFICO.

Minimum FICO Score Requirements

Before we get into how much you could save based on your FICO Score, let’s take a look at the different types of loans and the minimum score they require.

1. Conventional Loan: Minimum FICO® Score Required – 620

A conventional mortgage is a loan that is eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac, which makes these loans more affordable to borrowers. This type of loan falls into two categories: conforming and non-conforming.

A conforming loan is one in which the amount falls within the maximum limits of the two government agencies that back most mortgages. Loans that don’t fall within these limits are non-conforming and are considered “Jumbo” loans.

2. Jumbo Loan: Minimum FICO® Score Required – None (though most lenders require 680)

A jumbo loan is financing that exceeds the limits set by the Federal Housing Finance Agency. This means they are not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac (the two government agencies referred to in #1 above). Therefore, this is a non-conforming loan.

3. FHA Loan: Minimum FICO® Score Required – 500 (with 10% down) or 580 (with 3.5% down)

An FHA loan is for borrowers with limited down payment ability and whose credit history is higher risk. An FHA loan requires two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan (if you put down less than 10%).

4. VA Loan: Minimum FICO® Score Required – None (though most lenders require 620)

A VA (Veteran Affairs) loan is a $0 down mortgage issued by private lenders and partially-backed or guaranteed by the Department of Veteran Affairs. Eligible borrowers can use this type of loan to purchase a property as their primary residence or refinance an existing mortgage.

How FICO Scores influence mortgage interest rates

Some people might think having a higher credit score won’t make a big difference when it comes to interest rates. Nothing could be further from the truth. Lenders generally take into account FICO® Score “ranges” (i.e., 620+, 660+, 700+), and having a score in a higher range could save you thousands of dollars over the life of a mortgage loan.

A LendingTree study showed that borrowers with a “fair” score (580 – 669) pay significantly more in interest than those in the “very good” range (740 – 799). For an average loan amount of $253,435, the average mortgage borrower with a “very good” credit score paid about $219,660 in interest over time, while the “fair” score borrowers paid $261,076. If the borrower had waited until their score increased by 71 points, they would have saved over $41,000 in interest payments.

The study concluded that borrowers who have debt across credit cards, personal loans, car loans, student loans, and mortgages could save more than $56,000 by moving their credit score range from “fair” to “very good.” (That’s about $316 per month.)

So before deciding to purchase a home, check your FICO Score and consider whether you might be on the cusp of getting a better interest rate. You can use the myFICO Loan Savings Calculator to calculate potential savings based on your personal financial situation.

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