What Credit Score Do You Need to Get a Mortgage?

By: , Contributor

Published on: Dec 26, 2019 | Updated on: Dec 26, 2019

Here’s what your lender will likely require, and why you should try to do even better.

If you’re in the process of buying a home, or will be soon, you’ll probably be applying for a mortgage. The mortgage process can be a bit intimidating, but it can help if you know what lenders are looking for before you apply.

With that in mind, here’s a look at the general credit score requirements for getting a mortgage -- and why you might want to strive for a credit score that’s significantly higher than the minimum before applying.

What credit score do you need to get a mortgage?

The simple answer is that you can get a mortgage with a very low credit score.

FHA loans are popular among first-time homebuyers thanks to their low down payment requirements. These loans can be originated with a 3.5% down payment as long as the borrower’s credit score is 580 or higher, which is typically considered to be poor to fair credit. With a 10% down payment, an FHA loan can be made with a credit score as low as 500, which is well into the realm of poor credit. For context, a credit score in the 500s isn’t likely to qualify you for a credit card, and you’ll have a tough time finding a decent auto loan.

With a conventional mortgage, the short answer is that you’ll need a 620 or better. But the requirement can be much higher depending on your situation. Under Fannie Mae’s latest lending guidelines, the 620 minimum only applies for a one-unit property where the borrower has a down payment of at least 25% and has at least two months of loan payments in reserves, as well as a debt-to-income ratio (DTI) of less than 36%.

Just to name a few other scenarios under Fannie Mae’s lending standards:

  • Credit score requirements for mortgages with less than 25% down and a 45% maximum DTI start at 700.
  • If you’re buying a second home, you’ll need at least a 680 unless you have a 25% down payment.
  • Investment property loans require a minimum credit score of 640, and that’s for a one-unit investment property with at least 25% down, a DTI ratio no higher than 36%, and at least six months of expenses in reserves.

Why you should aim higher

The previous section only discussed the minimum requirements. It’s wise to wait until your credit score is significantly higher than the minimum for two main reasons.

First, qualification will be easier with a higher credit score. If you have the bare minimum, lenders will typically expect the rest of your qualifications (employment history, for example) to be flawless. With a stronger credit history, there can be a bit more flexibility in other areas.

Second, a mortgage can be much cheaper with a higher credit score. FHA loans have relatively low interest rates but high mortgage insurance costs. Conventional lenders offer interest rates tied directly to your credit score, and the difference might surprise you:

FICO Credit Score Range Average APR For 30-Year Fixed-Rate Mortgage Total Interest on $250,000 30-Year Mortgage
760-850 3.409% $149,582
700-759 3.631% $160,750
680-699 3.808% $169,772
660-679 4.022% $180,816
640-659 4.452% $203,454
620-639 4.998% $233,029

Data source: myFICO.com.

Here’s the takeaway: You can get a conventional mortgage with a 620 FICO score, provided that the rest of your qualifications are strong. However, on a $250,000 loan, the average borrower with that score will pay $83,447 in additional interest over the loan’s term. That’s why it can be a smart idea to work on your credit before buying a home, even if you already meet the minimum requirements for your desired mortgage type.

The bottom line

You can qualify for a mortgage with a very low credit score, but it’s usually not going to be the ideal option. Just like with most other forms of borrowing, individuals with stronger credit histories generally pay less for their mortgages. And as we’ve seen here, even small differences in mortgage interest rates can add up dramatically over time.

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