Your credit score is the biggest factor in determining whether you’ll qualify for a loan and what kind of interest rate you’ll pay. Unless you’re paying cash for a new home, you will really need to boost your credit score in order to secure the best rates on a mortgage.
If you’re buying a home soon or in the future, knowing your credit score is one of the first steps to determine where you stand.
What’s The Minimum Score To Buy A Home?
In actuality, there is no definite minimum score needed to buy a home. It depends on what type of loan you’re applying for. Below you will find the minimum requirements for different types of loan.
FHA Loan
If you are interested in applying for an FHA loan, to qualify for the low down payment of 3.5 percent, your FICO score must be 580. If your credit score is below 580, you can still apply for an FHA loan however, you will have to put down a 10 percent down payment to qualify for a loan.
So if you’re planning to buy a home and your credit score doesn’t meet the minimum, think whether you should put down a larger down payment or work on increasing your credit score first.
USDA Loan
USDA Rural Housing has no minimum FICO score however, most lenders want their borrowers to have at least a 620 score with no bankruptcies, foreclosures, or major delinquencies in the past years. You will still need to provide a decent credit history, demonstrating the ability to pay your mortgage in order to qualify.
Fannie Mae and Freddie Mac Loan
If you want to take out a mortgage loan backed by Fannie Mae and Freddie Mac, you will need to have a minimum FICO score of 620. Your Loan-to-Value ratio plays an important role too, your Loan-to-Value ratio must be less than 75 percent. If it’s greater than 75 percent, you will need a minimum FICO score of680.
VA Loan VA loan has no minimum FICO score requirement, however most lenders want borrowers to have a credit score of at least 620 to qualify for VA financing. The minimum requirement varies from lender to lender.
Your Credit Score Affects Your Mortgage Rate
Your credit score holds major influence in your interest rate. The better your score is, the better your interest rate will be. It also goes without saying that a high credit score can give you better chances of getting a home loan. Buyers with a FICO score of 620 and below, can still get a mortgage, but will be in for a rough ride.
Based on myFICO, a borrower with a FICO score between 680 and 699 trying to borrow $200,000 in South Carolina would have qualified for a 3.677 percent rate on a 30-year fixed mortgage, resulting in a $918 monthly payment. In comparison, a borrower with a FICO score between 620 and 639 would have qualified for a 4.863 percent rate, resulting in a $1,057 monthly payment. That’s $50,038 difference on interest payment.
| Credit Score | Interest Rate | Monthly Payment | Total Interest Paid |
| 760-850 | 3.279% | $874 | $114,496 |
| 700-759 | 3.5% | $898 | $123,312 |
| 680-699 | 3.677% | $918 | $130,468 |
| 660-679 | 3.89% | $942 | $139,189 |
| 640-659 | 4.319% | $992 | $157,111 |
| 620-639 | 4.863% | $1,057 | $180,506 |
Source: MyFico.com Loan Savings Calculator; rates based on South Carolina averages, assumes $200,000 loan principal, 30-year fixed-rate mortgage.
While a not so good credit score can impact the interest rate you’ll pay on your mortgage, it doesn’t have to be a road block to reach your goal of buying a home. You can still get a mortgage. You’ll just have to put in more effort to improve your score or put down more money.
If you do not have the minimum credit score to buy a home and you need to buy a home in the near future, you can improve your credit score in 6-12 months by following these tips. Work on improving your credit score as soon as you can since it can take few months to see improvement in your score. Make sure you stay current on your payments, pay off your debts, check your credit report for errors and dispute them if you found inaccuracies.
