What credit score is needed to buy a home?

When people talk about credit scores, they usually refer to borrowers’ FICO Scores from the Fair Isaac Corporation. But did you know that this is just one type of credit score, and other types of credit scoring models are used by the major credit bureaus?

Today, we will talk about the minimum credit score requirements needed to qualify for a mortgage. But instead of using the FICO Score as a reference, keep in mind that we’ll be using the VantageScore 3.0 credit score modeling system for this article.

Remember, credit scores are one of the do-or-die factors determining whether you can get approved for a mortgage loan. If you’re planning on shopping for mortgages soon, we’re so glad you’ve stumbled on this article today. We hope you can learn something here that will prove useful in your mortgage journey. Read on!

Credit Scores

Credit scores reflect on how often you can meet payment deadlines. This is when it comes right down to a criterion for judging your application that really matters to lenders.

Character

In school, you might have learned the three C’s of credit, of which the first one is character. However, it can be argued that character is really more about the morals and ethics of a person. Everyone has bills to pay, and unforeseen circumstances can arise all the time. When emergencies do happen, you sometimes have to say goodbye to a good chunk of your credit. As you start missing payments, your financials can pretty much unravel.

No one can be blamed for factors that are out of their control. In fact, the more disadvantaged you are, the more the system should be extending opportunities to help you rise. That’s why as you think about your credit score, later on, we do hope you remember that this is just a number. In no way will your credit score ever define your character.

VantageScore 3.0 Credit Score

Aside from a FICO Score, you can also get a VantageScore credit score from all three major credit reporting bureaus.

VantageScore was created fairly more recently than the older FICO Score. Equifax, Experian, and TransUnion jointly own it. Now on its third version, VantageScore is gaining more usage as more time goes by. But FICO remains to be the most widely used credit scoring system in America today.

Since the three bureaus also compute for FICO Scores, you can actually get both scores from Equifax, Experian, and TransUnion separately. However, you’ll notice that they won’t necessarily match each other. It’s still very much possible to get 6 different numbers if you get both FICO and VantageScores from each of the companies.

The two previous iterations of VantageScore used a range of 501 to 990 and used letters to label your bracket. For example, an “A” meant an exceptional score, while an “F” meant very poor. Today, VantageScore 3.0 follows after FICO, using a similar range of 300 to 850.

The following shows how VantageScore rates each range of scores:

300 – 499 : Very Poor

500 – 600 : Poor

601 – 660 : Fair

661 – 780 : Good

781 – 850 : Excellent

If you’re familiar with the FICO Score ranges, you’ll definitely see a difference in how they approach values. Although FICO’s scoring system has a more consistent range from “Poor” to “Exceptional,” VantageScore has a more varied scoring range.

Nevertheless, the minimum credit score requirements for different types of loans still stand. So whether you are getting a government-backed loan or a privately insured one, check out the next section for the list of loans and the minimum credit score needed to get a mortgage.

Type of Mortgage and Minimum Credit Score

Every borrower is unique, and the same goes for mortgages. Therefore, no one size can fit all. This is why mortgage brokers have to analyze your specific needs to determine the best type of loan to choose for you.

Below are some of the general types of mortgages you might encounter as you start shopping around.

USDA Loan

The first mortgage we’ll discuss is a government-backed loan insured by the U.S. Department of Agriculture. The government agency ensures these USDA loans to promote the purchase of real estate in rural areas.

USDA loans are one of those they call “zero-down payment” loans because, while there are still fees to be paid, you don’t need to make a real down payment, unlike most of the other loan types. Instead, you have to make sure that you are a legal U.S. citizen and not buying property near major cities and towns.

If you want to get approved for a USDA loan, you might find it to your advantage if you can have a credit score of at least 640 under your belt. However, there is no true minimum credit score needed to buy a house through a USDA mortgage. Should your credit score fall below 640, you might just be obliged to undergo a stricter underwriting process as well as present documentary proof of the circumstances that led to your poor credit score.

FHA Loan

Next on our list of government-backed loans that offer wider opportunities is the home loan insured by the Federal Housing Administration. As they are so-called, FHA loans are mortgages meant to always provide opportunities to first-time homebuyers who have poorer credit or minimal credit history. But it’s a favorite of first-timers and experienced buyers alike since you can be allowed to borrow up to 96.5% of your home’s purchase price even with a 580 credit score.

If your score falls under this number, even if you get a score as low as 500, your application can still get approved, but you’ll have to cough up funds for a 10% down payment.

Conventional Loan

If a bigger space for your home is more your style, you can try applying for a conventional loan which may not be insured by a government agency but can allow you to borrow a bigger loan amount. Just take note that since the government does not back this, you’ll have to pay for private mortgage insurance as long as your down payment falls under twenty percent.

The good news is you can borrow up to 97% of your house’s purchase price if you don’t mind paying the interest and the insurance.

To qualify for the best conventional loan for your dream house, you must have a credit score of 620 at the very least. Be warned, though, that some mortgage lenders might still demand better the higher your loan amount.

VA Loan

Finally, members of the military who want to buy a house can benefit from their profession.

The U.S. Department of Veterans Affairs ensures VA loans for the brave Americans who choose to serve their country. Through VA loans, service members are eligible for some of the best interest rates in the mortgage industry, as well as a zero-down payment scheme for their home loans.

However, active duty experience alone is not enough to get approved for a VA loan. You also need to have a credit score of at least 640 to cut.

How to Improve Your Credit

According to Experian, almost everyone has a credit score that can qualify for an FHA loan. Still, everyone has different needs, and our own personal circumstances affect the pool of options we can choose from.

In case you would stand to benefit from some more points for your credit score, we’ll leave you with a few surefire steps to take to improve your credit score in no time.

1. Check your credit report just in case there are errors.
2. In case there are some factual mistakes in your report, do your best to dispute them so they can be taken off your report.
3. Needless to say, always pay your bills on time.
4. Try to get yourself to become an authorized user on someone’s credit card. Note: this person must have a significantly higher credit score than yours. Within 60 days after you become an authorized user, some of your friend or relative’s data can start showing up in your own credit report, thereby increasing your own score.

Conclusion

Whatever rating you get, give yourself some credit because this means you already have a lot of experience with money.

But as life is an ongoing learning experience, there will always be time to grow, and there will always be room for improvement. Could you take it as a challenge? This is just the next step you need to take to achieve your goals tomorrow. Go for it!