A credit score is a three-digit number that lenders use to evaluate your creditworthiness for loans and credit cards. Your credit score is calculated based on your credit history, including payment history, amounts owed, length of credit history, new credit accounts, and credit mix. The most commonly used credit scoring models are FICO® Scores and VantageScore. FICO® Scores range from 300 to 850, while VantageScores range from 300 to 990. In general, the higher your credit score, the better.
When it comes to mortgage lending, most conventional loans require a minimum credit score of 620 to qualify. However, aiming for at least a 750 credit score will make it easier to get approved and secure better terms on a mortgage. So is 750 considered a good credit score for buying a house? Let’s take a closer look.
What is a Good Credit Score for Buying a House?
While mortgage lenders generally require a minimum score of 620 to 660 for approval, it pays to aim higher if your goal is to buy a home. Here are some general credit score guidelines for mortgage lending:
– Score of 620 to 639 – Can potentially qualify for an FHA loan or other specialized mortgage program for borrowers with lower credit scores. Will likely pay a higher interest rate and fees.
– Score of 640 to 699 – Considered fair credit. May qualify for an FHA loan, but could still get higher rates/fees than borrowers with good credit scores.
– Score of 700 to 749 – Good credit score range. Most lenders will approve conventional loans with scores in this range. Likely to enjoy competitive interest rates.
– Score of 750 to 799 – Very good to excellent credit. Will qualify for the best mortgage terms and lowest interest rates lenders have to offer.
– 800+ – Exceptional credit score. Enjoy prime mortgage rates and terms reserved for borrowers with the highest credit scores.
As you can see, a credit score of 750 is considered excellent for mortgage lending purposes. Borrowers with scores of 750 and higher are almost guaranteed approval for conventional mortgages at the best available rates. They are rewarded with low interest costs that directly translate into lower monthly payments and overall savings. Therefore, 750 is a great target score if you’re planning to apply for a mortgage.
Benefits of a 750 Credit Score on Mortgage Rates
Achieving a 750 credit score can really pay off when it comes to mortgage affordability. Here are some of the key benefits borrowers with 750+ credit scores can enjoy:
– Lower interest rates – Top credit means qualifying for the lowest rates lenders offer. The difference between fair credit and excellent credit could equal a .5% – 1% or more discount on a mortgage. Over the life of the loan, a lower rate can lead to tens of thousands in interest savings.
– Less need for mortgage insurance – Most conventional loans require mortgage insurance if you put less than 20% down. But some lenders waive this requirement for borrowers with high 750+ credit scores. Avoiding mortgage insurance saves 1% – 2% upfront and monthly.
– Increased buying power – Your credit score factors heavily into the size of the mortgage you can qualify for. Those with 750+ FICO® Scores can get approved for larger loan amounts than borrowers with fair credit and higher debt-to-income ratios. This allows you to purchase more expensive homes.
– More favorable terms – From the loan type and down payment requirements to origination fees and closing costs, excellent credit means qualifying for the most favorable loan terms lenders have available. This maximizes affordability.
Interest Rate Differences by Credit Score
Looking at current average mortgage rates showcases the sizable impact your credit score has on interest costs:
| Credit Score | Interest Rate* |
|---|---|
| 300 – 639 | 6.25% – 7.25% |
| 640 – 699 | 5.875% – 6.125% |
| 700 – 749 | 5.250% – 5.750% |
| 750+ | 4.25% – 5.125% |
*Rates based on 30-year fixed-rate conventional mortgage as of November 2023. Your actual rate will depend on your full credit profile, down payment amount, debt-to-income ratio, loan type, and current market rates. But this table demonstrates the interest cost savings of having excellent 750+ credit.
Minimum Credit Score Requirements by Mortgage Type
Beyond interest rates, your credit score also impacts the types of mortgages you’ll qualify for. Each mortgage program has its own minimum score requirement that must be met. Here are some of the most common mortgage types and associated credit score requirements:
Conventional Mortgages
For conventional loans backed by Fannie Mae or Freddie Mac, you’ll need a 620 minimum score for 3% – 5% down, and a 640 minimum score for less than 3% down. But again, 750+ scores qualify you for the best rates/terms.
FHA Loans
FHA mortgages are popular for borrowers with weaker credit or low down payments. They require just a 580 credit score minimum. But borrowers with scores below 620 will need to make a 10% down payment. FHA rates are also higher for those under 700.
VA Loans
VA mortgages for military families come with very low minimum score requirements. Applicants need just a 640 FICO® Score to qualify. VA loans reward borrowers who improve their credit before applying. Those with 660+ scores enjoy lower interest rates.
Jumbo Mortgages
Jumbo loans exceeding conforming loan limits demand higher scores. Most jumbo lenders want 720 – 740+ for approval, with the best terms going to buyers with 760+ credit. Strong scores help offset the increased risk of these larger loans.
Debt-to-Income Ratios by Credit Score
Lenders limit the amount of your gross monthly income that can go toward total debt payments, including your mortgage. This is expressed as your debt-to-income (DTI) ratio. The maximum DTI you qualify for improves alongside your credit score.
| Credit Score Range | Maximum DTI |
|---|---|
| 620 – 659 | 45% DTI |
| 660 – 699 | 50% DTI |
| 700 – 749 | 55% DTI |
| 750+ | 60% DTI |
Higher DTI allowances give borrowers with excellent 750+ credit more buying power and flexibility in their home purchase.
Down Payment Requirements by Credit Score
Your credit score can impact the minimum down payment needed to qualify across loan types. Lower credit means putting more money down, while buyers with 750+ scores often qualify for the minimum requirements.
Here are some examples by loan type:
Conventional Loans
– 620 – 659 Scores: 10% down minimum
– 660+ Scores: 3% down minimum
– 740+ Scores: Potentially qualify for 3% or 0% down programs
FHA Loans
– 500 – 579 Scores: 10% down minimum
– 580+ Scores: 3.5% down minimum
VA Loans
– 640+ Scores: 0% down allowed
– 700+ Scores: Improved terms and rates
Putting down 20% or more can earn you the best rates across all loans. But excellent credit provides more flexibility if you’re unable to make a large down payment.
Should I Wait to Improve my Credit Score?
If your current credit score falls a bit short of that ideal 750 target, you may be wondering if you should wait, and work to improve your credit before applying for a mortgage. This is a smart consideration when your score is on the cusp.
Just a small credit score bump could mean big savings on your mortgage. For instance, improving from a 740 to 750+ could potentially lock in a lower interest rate and save tens of thousands over the loan term.
However, exact thresholds vary by lender. While one lender may offer better pricing at 740 vs 750, another may view those scores the same. Shop around with a few lenders to see impact on rates before deciding if a credit boost is worthwhile.
Also weigh rate savings vs. home price changes in your market. A drop of .125% on a rate could save $26 a month on a $300,000 loan. But in a market seeing 5% annual appreciation, waiting another 5 months to boost your credit 20 points could mean paying $7,500+ more for the same home.
Lastly, avoid new credit inquiries when trying to improve your score right before applying for a mortgage. New credit can actually drop your scores temporarily. Focus instead on lowering credit utilization by paying down balances.
Tips for Improving Your Credit Score
If you do decide to wait and improve your credit, here are some top tips for boosting your score:
– Pay all bills on time – Payment history is the biggest factor in your scores. Set up autopay and calendar reminders to avoid late payments.
– Pay down balances – Lower credit utilization by paying down card and loan balances before they’re reported each month. Get balances below 30% of limits.
– Monitor credit reports – Review reports from Equifax, Experian and TransUnion to check for errors negatively impacting your scores. Dispute any inaccuracies.
– Don’t close old accounts – Keep longstanding credit lines open, as the age of accounts factors into your score. Only close newer cards if you have other old lines.
– Limit credit inquiries – Each application can ding your scores slightly. Only apply for credit when you need it, not just to get offers.
– Ask for credit line increases – Higher limits without higher balances lower your utilization and may boost scores. But don’t take on debt just to get more credit.
With diligent credit management, you can boost your scores 50 points or more within 6 months. Just don’t obsess over small changes – a difference of 5 or 10 points is negligible. Minimum mortgage score requirements are wide ranges, not absolute cutoffs. Focus on measurable savings when debating delays to improve credit.
What Else Impacts Mortgage Approval?
While your credit score plays a major role, it’s not the only factor mortgage lenders consider. Be sure to optimize these other key criteria:
– Down payment amount – Have at least 5% to 20% of the home’s purchase price saved for a down payment and closing costs. Larger down payments result in better rates/terms.
– Debt-to-income ratio – Keep total debt payments under 50% of gross monthly income. Lower DTIs qualify for larger loan amounts. Pay down debts before applying.
– Employment history – Lenders want a 2-year history in the same line of stable work. Gaps require letters explaining the reasons.
– Income verification – Document current wages with recent paystubs and tax returns. Have explanations handy for any withdrawals, deposits or inconsistencies.
– Reserves – Have 3 to 6 months of mortgage payments readily available in checking/savings to verify you can make payments if hardships arise.
– Documentation – Have all documents like bank statements, W2s, and IDs ready. Discrepancies and delays can jeopardize approvals.
Managing these factors alongside an excellent credit score sets you up for a smooth mortgage approval.
Alternatives for Borrowers with Lower Credit Scores
For those who need to buy sooner but have credit scores below 750, all hope is not lost when it comes to homeownership. Many mortgages require just a 620 FICO® Score for approval. You can also explore these alternative options:
– FHA loans – FHA mortgages offer lenient credit requirements and low down payments to buyers with scores as low as 580. Conventional loans are still better for 700+ scores.
– VA loans – No minimum credit score requirements and 100% financing make VA mortgages ideal for credit-challenged military families.
– USDA loans – Applicants in rural areas can qualify with just a 640 credit score and 0% down payment via USDA’s mortgage program. Could be an option if FHA loans don’t work.
– Mortgage co-signers – Adding a co-signer with excellent credit can help borrowers with low scores still obtain a conventional mortgage. Just know both parties are equally liable for payments.
– Credit score seasoning – Waiting just 6-12 months to establish or re-establish credit scores can significantly boost mortgage approval chances after a major credit event.
With alternative options, setting a target credit score below 750 may still allow you to purchase in your desired timeframe. Just beware higher rates and costs compared to excellent credit borrowers. Check with lenders to see if waiting to improve your score further could save you money down the road.
The Bottom Line
A credit score of 750 or higher is considered excellent for mortgage approval. Borrowers with 750+ FICO® Scores qualify for the best interest rates and loan terms lenders have available. Just a small difference in scores can save thousands over the life of your home loan.
While excellent credit is rewarded, buyers can still qualify for mortgages with lower scores as low as 620 – 640. Each lender has its own requirements. Those with poorer credit simply pay more in rates and fees. Before applying, understand the score ranges for the loan programs you’re considering, so you don’t sell yourself short by a few points.
Don’t become discouraged if your score falls slightly below 750. Shop around with multiple lenders and explore alternative mortgage options to find the most affordable home loan your current credit score will allow. Lastly, consider holding off a few months to boost your score if waiting could result in measurable savings versus home price changes in your market. With a diligent credit building strategy, you can quickly gain points and maximize your home buying power.
