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What is the Average Credit Score to Buy a House?

maib
Mai Browne Updated: October 3, 2023 • 6 min read
moving into dream home

Credit scores play a crucial role in determining your eligibility for a mortgage. Your creditworthiness is based on factors such as payment history, credit utilization, length of credit history, and types of credit.

Lenders examine your credit score to assess their risk associated with lending you money for a mortgage. Higher credit scores indicate lower risk, making borrowers more likely to provide favorable loan terms and interest rates.

Maintaining a good credit score is critical for aspiring homeowners seeking mortgage approval.

While the national average credit score for homebuyers is around 711, credit score requirements can vary depending on loan type.

Average Credit Score Requirements for Buying a House

The national average credit score for a mortgage required for homebuyers can vary depending on several factors. According to Experian, a leading credit reporting agency, as of 2021, the average FICO® Score in the United States was 711. However, the credit score requirements to qualify for a mortgage can differ based on various factors.

Loan type, such as conventional or government-backed loans (like FHA or VA), can impact credit score requirements.

  • For conventional loans: Lenders typically prefer higher credit scores, often aiming for scores in the range of 620 to 700 or higher.
  • Government-backed loans: May have more flexible requirements, with FHA loans commonly accepting scores as low as 580, and VA loans typically not having a minimum score requirement.

Moreover, lenders may have their own specific credit score thresholds and eligibility criteria. Some lenders may be more lenient with lower credit scores but may compensate by imposing higher interest rates or requiring a larger down payment.

Your down payment amount can also influence credit score requirements. A larger down payment can mitigate some of the risk associated with a lower credit score, making lenders more inclined to approve the mortgage.

In summary, while the national average credit score for homebuyers is around 711, credit score requirements can vary depending on loan type, lender preferences, and down payment size. It's crucial for potential buyers to research and communicate with lenders to understand specific requirements for their desired mortgage.

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Factors Affecting Credit Score Requirements

Different loan programs have varying credit score requirements. Here are the credit score ranges commonly associated with popular loan types:

  • Federal Housing Administration (FHA) loans: FHA loans generally accept borrowers with credit scores as low as 580. However, a credit score between 500 and 579 may be considered with a higher down payment requirement, typically around 10%.
  • Department of Veterans Affairs (VA) loans: VA loans often do not have a specific minimum credit score requirement set by the Department of Veterans Affairs (VA). Instead, individual lenders may establish their own credit score requirements, typically ranging from 580 to 620. 
  • Conventional loans: Conventional loans usually have stricter credit score requirements than government-backed loans. A credit score of 620 or higher is commonly preferred by lenders, although some may require scores in the range of 680 to 700 for better terms and interest rates.

Larger down payments and lower loan-to-value (LTV) ratios can potentially compensate for lower credit scores. Here's how these factors influence credit score requirements:

Larger Down Payments

Making a larger down payment can reduce the lender's risk and may make them more willing to approve you for a mortgage with a lower credit score. A substantial down payment can demonstrate your financial stability and commitment, improving your overall creditworthiness.

According to the National Association of Realtors, as of 2023, the average down payment on a house is 13% of the total purchase price. It's even lower for first-time homebuyers, at around 6%. So, if you're financially able to put down 20% or more, you may be able to increase your chance of getting approved, not to mention, lower your monthly payments.

Lower Loan-to-Value Ratios

A loan-to-value ratio (LTV) is a number that shows how much money you borrow compared to the value of the house you buy. For example, if you buy a house for $200,000 and borrow $150,000, your LTV is 75%.

A lower LTV is better because it means you have more money invested in your home. This makes you a less risky borrower, so lenders may be more willing to approve your mortgage application.

If you have a low credit score, you may still be able to get a mortgage if you have a low LTV. This is because a low LTV shows that you have a lot of equity in your home, which means you're less likely to default on your loan.

If you're financially able to put down 20% or more, you may be able to increase your chance of getting approved for a mortgage.

Building and Improving Your Credit Score for Homebuying

Upping your credit score is crucial if you're an aspiring home buyer who want to achieve a good credit score to buy a house.  Here are some guidelines to help in this process:

  • Timely payments: Make sure to pay all bills, including credit cards, loans, and utilities, on time. Late payments can have a significant negative impact on credit scores.
  • Manage credit utilization. Aim to keep credit card balances low and avoid maxing out credit limits. High credit utilization ratios can signal financial strain and lower credit scores. Ideally, keep utilization below 30% of the credit limit.
  • Maintain a positive credit history. Building a positive credit history takes time. Keep old credit accounts open, as they contribute to the length of credit history. Use credit responsibly by making small, manageable purchases and paying them off promptly.

Reviewing Credit Reports and Disputing Inaccuracies

Regularly review your credit reports from the major credit bureaus (Equifax, Experian, and TransUnion). Check for errors, such as incorrect personal information or accounts that don't belong to you.

If you find inaccuracies, dispute them with the credit bureau by providing supporting documentation. They are legally obligated to investigate and correct any errors.

Seeking Professional Credit Counseling

If you're struggling with credit management or have significant debt, consider seeking assistance from a reputable credit counseling agency. They can provide guidance on budgeting, debt repayment strategies, and improving your credit score.

Remember, building and improving credit takes time and consistent effort. Responsible financial habits, such as making timely payments, managing credit utilization, and maintaining a positive credit history, are key to achieving a good credit score.

Having a good credit score to buy a house plays a significant role in determining your eligibility for a mortgage.

Overcoming Credit Challenges

If you have a lower credit score, there are strategies to overcome these challenges and improve your chances of getting approved for a mortgage. These include:

  • Credit repair: Consider working with a reputable credit repair agency that can help identify and resolve errors on your credit report, as well as provide guidance on improving your credit score through strategic actions.
  • Specialized lenders: Some lenders specialize in working with borrowers who have lower credit scores or unique financial situations. These lenders may be more flexible in their credit requirements and can offer alternative loan options.
  • Housing counseling agencies: Seek assistance from housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD). These agencies can provide guidance on improving credit, managing debt, and exploring available homeownership programs and resources.
  • Alternative loan programs. Explore government-backed loan programs like FHA loans, which may have more lenient credit score requirements compared to conventional loans.

It's important to exercise caution and research the legitimacy and reputation of any credit repair agency or specialized lender before engaging their services. Additionally, working with housing counseling agencies can provide valuable education and resources to help improve creditworthiness and navigate the homebuying process.

 

Conclusion

In conclusion, having a good credit score to buy a house plays a significant role in determining eligibility for a mortgage. While the national average credit score for homebuyers is around 711, credit score requirements can vary based on loan type, lender preferences, and down payment size. Larger down payments and lower loan-to-value ratios can potentially compensate for lower credit scores.

Building and improving credit scores through timely payments, managing credit utilization, and maintaining a positive credit history are essential for achieving the desired first-time homebuyer credit score. Additionally, options such as credit repair, specialized lenders, and housing counseling agencies can help individuals overcome credit challenges and achieve their homeownership goals.

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Written by Mai Browne linkedin-icon

Mai Browne has 20+ years of experience working at and writing for Fortune 500 companies, financial services firms, and professional services firms, including three of the Big 4. She has also written for Money Magazine, The Journal of Accountancy, and other publications.