Understanding Credit Scores and How They Affect Your Home Loan Options
Your Path to a Mortgage Starts With Your Credit
A credit score summarizes your borrowing habits, including how reliably you repay loans, your current debt, and the length of your credit history—all in one number. Scores typically range from 300 to 850. The higher your score, the more creditworthy you appear to lenders. Your credit score when buying a home influences the type of loan you can get, your interest rate, the need for mortgage insurance, and even closing costs.
What Your Credit Score Means for Your Loan Options
500–580: Lowest qualifying tier. Only FHA loans are available, with a required down payment of at least 10%.
580–619: May qualify for an FHA loan with just 3.5% down. Options improve but are still limited.
620–669: Eligible for conventional and VA loans, though rates and terms might not be ideal.
670–700: Solid range. Access to better rates and more flexibility.
700–740: Strong credit opens the door to competitive interest rates and favorable terms.
740+: Top tier. Qualify for the best rates and loan options available.
FHA Loans: Helping Buyers With Low Credit Scores
FHA loans, backed by the Federal Housing Administration, are designed for borrowers with imperfect credit. Minimum scores range from 500 (with 10% down) to 580 (with 3.5% down), making these loans a starting point for first-time buyers or those recovering from financial setbacks.
FHA loans require mortgage insurance premiums (MIP), which can impact long-term costs. With a down payment under 10%, MIP lasts for the life of the loan. With 10% or more, MIP ends after 11 years. Stronger financial profiles may want to explore other loan types to avoid extra fees.
Conventional Loans: Ideal for Qualified Borrowers
Conventional loans, offered by private lenders, aren’t backed by the government. A credit score of at least 620 is typically required. Higher scores (700+) often secure favorable terms and interest rates.
Private Mortgage Insurance (PMI) is based on the down payment, not just credit score. A 20% or larger down payment avoids PMI. Conventional loans are suited for borrowers with good credit, stable income, and enough savings for a substantial down payment. Lower credit or limited funds may make qualification harder and interest rates higher.
VA Loans: Benefits for Military Families
VA loans are available to eligible veterans, active-duty service members, and surviving spouses. While the VA doesn’t set a minimum score, lenders often require around 620. VA loans require no down payment and no PMI, though a one-time VA Funding Fee (1.25%–3.3% of the loan) is usually required, depending on down payment and whether it’s your first VA loan. Some veterans, like those receiving disability benefits, are exempt. Flexible debt-to-income ratios make VA loans an attractive option for eligible borrowers.
USDA Loans: Great for Rural Buyers
USDA loans serve moderate-income buyers in designated rural areas. While no official minimum credit score is set, scores of 640+ qualify for streamlined approval. Those below may undergo manual review. USDA loans offer zero down payment and competitive rates, but eligibility is restricted by location and income.
Jumbo Loans: For High-Value Homes
Jumbo loans finance homes exceeding conventional loan limits ($766,550 in most areas for 2024, up to $1,149,825 in high-cost areas). Generally, a credit score of 700+ is needed. These loans require large down payments, strong income, and substantial cash reserves. If your credit or finances aren’t strong, qualifying may be difficult.
Looking Beyond Rates
While favorable loan terms are important, don’t overlook the bigger picture. A slightly higher rate or less-than-perfect loan can still be a bridge to long-term stability. Buying a home may lower monthly expenses compared to renting while building equity. Ownership also offers psychological benefits: stability, community roots, and a financial stake in an appreciating asset.